Top analyst Colin Sebastian at Baird is chiming in with an upbeat take on Alibaba (NYSE:BABA) following this morning’s encouraging news. The Chinese e-commerce giant and its logistics subsidiary Cainiao revealed a deal to invest $1.38 billion for a 10% stake in ZTO Express, a Chinese delivery company; a deal anticipated to close by the start of June.
To Sebastian, this marks another key stride the company’s expansion of a rising transportation and logistics bas- all while bolstering BABA’s New Retail initiatives in enhancing connectivity between online and offline commerce.
In reaction, cheering that these investments shine light on savvy logistics and payment prospects, the analyst reiterates an Outperform rating on BABA stock with a $220 price target, which implies a 9% upside from current levels.
“We note this minority investment is consistent with Alibaba’s typical M&A strategy, and we believe BABA will be able to leverage ZTO’s last-mile delivery capabilities and Cainiao’s logistics management tools to improve delivery speed and efficiency across mainland China,” writes Sebastian.
Keep in mind, this “acquisition leverages existing relationship,” continues the analyst, believing the deal “should drive further efficiency.” Sebastian pays attention to the close of 2016 circa ZTO’s IPO, when BABA’s e-commerce shipments are said to have taken a 75% slice of the company’s delivery volume.
The analyst asserts, “As such, we anticipate integration with BABA’s existing logistics infrastructure, including the recently acquired Cainiao network, should be relatively seamless and will improve operating efficiency shortly after closing. Alibaba plans to help ZTO with first- and last-mile pickup and delivery, cross-border logistics, and warehouse management, all of which should help improve the delivery experience for Alibaba e-commerce customers.”
On a final bullish note, the analyst draws focus to Ant Financial, a continuous robust element of “e-commerce ambitions” for the company. “As rumors around an upcoming IPO continue to circulate, the largest private tech funding round in history is a strong sign of investor confidence, as Alibaba’s financial arm continues to expand its presence across China and Southeast Asia,” concludes Sebastian, who eyes the Alipay platform as a key to the company’s New Retail goals in a strategy to close the “gap” between its e-commerce and brick & mortar segments.
Colin Sebastian has a very good TipRanks score with a 78% success rate and a high ranking of #11 out of 4,810 analysts. Sebasitan yields 25.4% in his annual returns. When recommending BABA, Sebastian garners 45.5% in average profits on the stock.
TipRanks suggests a strong bullish consensus betting on the Chinese e-commerce king. All 14 analysts polled in the last 3 months unanimously rate a Buy on BABA stock. With a solid return potential of nearly 23%, the stock’s consensus target price stands at $246.07.