Alibaba (BABA) Earnings Spark Optimism Among Investors; Top Analyst Weighs in on the Stock


In an earnings season marred by a government shutdown and ominous signals from China’s economy, financial estimates have taken a back seat to a more visceral metric — fear. A common praise from sell-side analysts this quarter has been that results were “better than feared.” The trend may be exemplified by Alibaba (BABA) stock, which rose nearly 6% Wednesday after a quarterly revenue forecast that fell short of analyst estimates, but adj. EBITDA margin and EPS, which exceeded expectations.

Specifically, F3Q:19 revenue of ¥117.3 billion (+41% y/y growth) was lower than consensus of ¥119.0B (+43% y/y). Adj. EBITDA margin of 34.7% was higher than consensus expectations for 32.9%. The margin upside came from better-than-expected core commerce adj. EBITA margin of 45% partially offset by lower-than-forecast digital media and entertainment margin of -93%. Adj. EPS of ¥12.19 beat consensus of ¥11.45 estimates.

In reaction, SunTrust’s top analyst Youssef Squali reiterated a Buy rating on Alibaba shares, with a price target of $180, which represents a potential upside of 10% from where the stock is currently trading.

Squali noted, “We think BABA’s exposure to the US-China trade war seems to be small as the primary growth driver for BABA has been and will likely continue to be domestic consumption and corporate digitization, not exports. Interestingly, management believes the BABA could have a positive role to play in helping even out trade imbalances between the two countries, as BABA can help drive Chinese household consumption of US products.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 17.9% and a 63.5% success rate. Squali has a 19.3% average return when recommending BABA, and is ranked #70 out of 5129 analysts.

Overall, Alibaba has one of the best ratings by the Street. TipRanks reveals that BABA has a Strong Buy analyst consensus rating with 21 back-to-back ‘buy’ ratings in the last 3 months. Meanwhile the average analyst price target of $199.75 suggests the stock still has upside potential of just over 20% from the current share price for the next 12 months. (See BABA’s price targets and analyst ratings on TipRanks)

 

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