MorningWord 9/25/13: Back on July 24th, prior to FB’s blowout Q2 results and when the stock was in the mid $20s with a measly market cap of about $60 billion, Wall Street analyst sentiment, at least as it relates to price targets, was bottomed out. A look below from our last 3 quarterly previews shows the slight shift from Jan 30th an avg 12 month price target of $34, to July 23rd at $33. What’s also interesting is that while the price targets floated lower, the buy ratings started to creep back up as the stock came up off of the mat from the June lows around $23.
From our Q2 preview on July 23rd: Wall Street analysts are relatively bullish on the stock, with 31 Buys, 10 Holds and 3 sells with an avg 12 month price target of ~$33.
From our Q1 preview on April 29th: Wall Street analysts remain fairly positive on the stock with 25 Buys, 14 Holds and 3 Sells with any avg 12 month price target of about $33.60, or ~23% higher than current levels.
From our Q4 preview on January 30th: Wall Street analysts remain fairly optimistic on the stock with 27 Buys ratings, 12 Holds and 2 Sells, though the avg 12 month price target is only ~$34.
Now that the stock has nearly doubled and gained almost $60 billion in market cap in 2 months, Wall Street analysts are basically uniformly bullish on the stock with a 12 month avg price target of $46 (stock currently ~$49) and 37 Buys, 9 Holds and NO Sells.
I guess I would just add that while I was of the mindset that the initial 40% or so of gains in late July, back to the stock’s IPO price would serve as sufficient resistance (clearly wrong there), the now nearly 100% gains in a little more than 2 months, and the subsequent $60 billion in added market cap based on a mobile revenue beat in the quarter is now bordering on mania. While we don’t short stocks solely on valuation, this one is quickly making less and less sense.
I get it why some growth managers have piled in. There are few large cap stocks that are expected to come anywhere near Wall Street’s estimates for the company to grow earnings this year and the next 2 years at ~35% a year (.72 to .96 to 1.29), with sales that are expected to grow ~44% this year and ~30% a year for the next 2 years from $7.34 billion to $12.43 billion in 2015. But let’s not forget FB just catapulted itself to be in the top 50 market cap companies the world over.
The mobile revenue growth story clearly has legs, but at some point sane investors may not be able to continue to justify what they are paying for this growth and trust me you will not want to be the last guy holding the bag when this growth plateaus.
Back on the Q2 conference call FB in late July, FB’s CFO might have tried to get in front of overzealous growth expectations (despite not knowing the stock would double since these comments) when he suggested:
“ We expect newsfeed ads to remain the main driver of revenue growth in the second half of the year and we believe we have a great opportunity to continue to drive long-term growth by improving the quality and relevance of these ads. However remember that newsfeed ads really began to contribute to our revenue in the third and fourth quarters last year which will make for more difficult year-over-year comparisons in Q3 and Q4 relative to Q2.”
As we head into quarter end I see little to derail FB in the near term, but the Q3 report in late Oct will likely be a sort of make or break for the stock’s recent leg from $40 to $50, as I expect $38 to remain technical and psychological support on the downside for some time. But all bets are off when a stock is in the midst of its own mania.