As Alibaba Group (NYSE:BABA) prepares to dish out its fiscal fourth quarter print for 2018, anticipated come May 17th, one of Wall Street’s best performing analysts bets the company’s compelling prospects are mostly undervalued by Wall Street traders.
Setting confident expectations ahead of the earnings turnout, top analyst Youssef Squali at SunTrust reiterates a Buy in a bullish research report with a $225 price target, which implies a solid 28% upside from current levels
For the fourth fiscal quarter of 2018, the analyst maintains his top line forecast of CNY 59.1 billion, but boosts his EBITDA expectations from CNY 19.0 billion to CNY 20.0 billion on back of “slightly” raised gross profit assumptions. Yet, taking under account negative items offsetting an only “slightly” stronger gross margin, the analyst likewise dials down his adjusted net income projection from CNY 16.0 billion to CNY 13.3 billion.
Though the analyst looks for Analyst Day to be put on hold until September, the fiscal 2019 guide is “likely” to be posted with the fourth quarter showcase. For fiscal 2019, the analyst stands more bullish in his expectations than the Street, angling for CNY 59.1 billion in revenue, CNY 16.8 billion in EBITA, and CNY 13.3 billion in adjusted net income from the e-commerce king. For context, FactSet consensus is betting on CNY 58.6 billion in revenue, CNY 18.5 billion in EBITA, and CNY 15.4 billion in adjusted net income.
Squali believes Wall Street is underestimating Alibaba ahead of its earnings show: “We note that EBITA estimates have been trending down recently, as we get closer to earnings. We believe the Street is not accounting for increased content costs in its Digital Media & Entertainment segment, which along with a seasonally softer brand advertising environment, should weigh on profitability, along with the company’s growing New Retail/Logistics efforts.” Considering the company is in the process of “absorbing” consolidated segments including Cainiao, the analyst wagers BABA is trying to get over the hurdle of optimizing overhead in the mean time.
Bottom line, “we’ve revamped our model going into F4Q earnings, reflecting strong top line growth/higher investments to fund growth initiatives including Ant Financial, New Retail and Digital Media. We believe US-China trade war headlines represent a buying opportunity for LT investors, and the prospects around New Retail are still largely misunderstood by the Street. Strong brand, unmatched scale, diversified offering and proven mgmt give BABA a unique competitive advantage, as it continues to fuse the online/offline world in and around China,” writes Squali.
Youssef Squali has a very good TipRanks score with a 70% success rate and a high ranking of #56 out of 4,766 analysts. Squali yields 19.8% in his yearly returns. When recommending FB, Squali garners 23.9% in average profits on the stock.
Wall Street sentiment is resoundingly positive when it comes to Alibaba’s market opportunity, according to TipRanks analytics. All 17 analysts polled in the last 3 months rate a Buy on BABA stock. With a healthy return potential of 32%, the stock’s consensus target price stands at $234.29.