Alibaba (BABA) Stock on Its Way to $220, Says Wells Fargo

Wells Fargo's Ken Sena now angles for 21% in return potential for BABA stock.


Alibaba (NYSE:BABA) boasts an outlook Wells Fargo analyst Ken Sena cheers as “very investible” for fiscal 2019 following the company’s fourth fiscal quarter print posted Friday.

In reaction to better revenue and profit growth, even amid some margin weakness, the analyst reiterates an Outperform rating on BABA stock while boosting the price target from $220 to $230. This implies a healthy close to 21% upside from current levels. (To watch Sena’s track record, click here)

For fiscal 2019, BABA set robust revenue expectations, calling for more than 60% growth, or over 50% not including Cainiao and Ele.me acquisitions. Notably, this marks an impressive beat compared to Sena’s forecast of 43% excluding Ele.me and the Street’s 39% estimate that is “mostly excluding Ele.me.”

That said, the analyst recognizes a dip in margins at play: “underlying structural change within the core business, particularly as it pertains to new retail initiatives, where the bulk of its Other China Retail Revenues are booked first party vs third party […] means that the affected margin profile offers material offset to the revenue strength. Specifically, revenue contribution from the new retail initiatives should move from 6% of total revs to low teens in FY2019, where, as mentioned, these revenues have a fundamentally different gross margin profile vs. the core.” Cainiao and Ele.me may deliver some revenue, but the analyst notes they will ultimately stick BABA with losses through the course of fiscal 2019.

Overall, Sena concludes on a bullish note bigger picture: “Alibaba signaled incremental investment and weaker seasonal trends heading into the March quarter, but revenue growth – particularly as it pertained to FY2019 guide – well more than delivered. And though margins for this quarter were sufficiently below expectation, largely as result of various new retail initiatives in addition to content and international investments among other areas of spend, the better-than-expected revenue guidance nets out to profit growth higher than our prior expectations.”

This e-commerce king has earned popularity as one of Wall Street’s tech darlings, according to TipRanks analytics. All 14 analysts polled in the last 3 months unanimously rate a Buy on BABA stock. With a return potential of 26%, the stock’s consensus target price stands at $238.14.  

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