Ahead of Earnings, Top Analyst Believes Alibaba (BABA) Is a $210 Stock

Wall Street is eagerly awaiting Alibaba’s (BABA) Thursday morning earnings, as investors digest the implications of the trading war between the U.S. and China.

The Chinese e-commerce giant has been battling the trade war, which plays a negative role in the Chinese economy, while also contributing to higher investor uncertainty and volatility.

But 5-star RBC Capital analyst Mark Mahaney remains bullish on BABA, maintaining an Outperform rating and $210 price target, which implies nearly 30% upside from current levels. 

As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Mahaney has yielded a yearly average return of 21% with a 62% success rate. Mahaney has earned an average return of 46.6% when recommending BABA and is ranked #59 out of 5,234 analysts.

For the fiscal first quarter, Mahaney is forecasting revenue of 111.9B RM, Adjusted EBITDA of 35.4B RMB (32% Margin), and Adjusted EPS of 11.76 RMB. Looking ahead, the analyst believes management will reiterate FY2020 revenue growth guidance of at least 500B RMB, compare to Street estimates of 506.6B RMB.

Furthermore, the top analyst is looking to see a 500bps decrease in gross margin to 41% (since last year), with EBITDA down 400bps to 32%. Looking at his crystal ball, Mahaney says performance will be “driven by investments in Consumer Services, New Retail, and Logistics.”

Mahaney expects Alibaba’s main revenue-generator, Core Commerce, to grow 40% since last year and make up 68% of revenue. 

Its cloud segment also continues to grow, with Mahaney expecting a rise of 76% since last year, and represents “a potentially very large $30-$40B market opportunity for Alibaba.” 

But most importantly, the analyst will be closely watching segment profit, which he believes is “important for investors to focus on in gauging the health of the organic business ex/ BABA’s recent investments.” 

All in all, Alibaba continues to grow very rapidly and has done well relative to expectations, but investors are a bit nervous right now because of US-China concerns. Should they? Probably not. Most analysts believe this is just a short-term storm that will eventually pass. TipRanks analysis of 18 analyst ratings shows a consensus Strong Buy, with all 18 suggesting ‘buy.’ The average price target among these analysts stands at $218.94, which represents about 33% upside from current levels. (See BABA’s price targets and analyst ratings on TipRanks)

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