Should You Blindly Follow Facebook (FB) Stock Along the Buyback?
During a time where Facebook (FB) management is under fire, negative press has taken a toll on its stock and even users feel skeptical about the social media platform’s security — Deutsche Bank’s analyst Lloyd Walmsley remains bullish on the stock and has even made FB his top pick for large cap Internet companies. The report comes just days after FB announced a hefty buyback of its own shares. The bold move prompted Walmsley to reiterate a Buy rating for the stock with a price target of $195, showing a potential upside of 37%. (To watch Walmsley’s track record, click here)
Friday, December 7th, Facebook’s board authorized the $9 billion worth of incremental share repurchase, which historically FB has said was a means to offset stock comp dilution and act opportunistically. Year to date, FB has already repurchased $9.4 billion worth of its own stock, a major increase from the $2 billion of share repurchase in 2017. Walmsley says FB has been more aggressive than some mega-cap peers when it comes to initial buybacks. The first, of $6 billion in late 2016 is a large initial investment, with its second costing $9 billion in April 2018 and this third installment also of $9 billion authorized less than a year later.
“We view the move as wise (given our views on the stock) and a positive endorsement from the management team and the board,” Walmsley says. “[…] we continue to view Facebook as the best risk/reward in large cap internet given the potential for core Facebook engagement to stabilize, for monetization in the Stories format to drive a potential re-acceleration in growth in mid-2019, for the negative news cycle to abate and given the extremely attractive current valuation of 15.3x 2020E GAAP EPS and 13.7x GAAP EPS excash. We are encouraged that on top of Facebook’s relatively aggressive share buyback to-date, the board expanded the repurchase authorization again by an additional $9B,” the analyst explains.
Walmsley says he looks forward to getting an industry update regarding trends in FB advertising and monetization for Stories at a meeting planned for December 19th in New York with the company’s ad agency.
Wall Street also likes the risk/reward at play here. TipRanks analytics reveals the stock is considered a “Strong Buy” on the street. Out of 38 analysts who have reviewed the social media giant in the last three months, 31 are bullish, 6 sidelined and 1 bearish. The consensus price target of $188.31 shows a potential upside of nearly 33% from where the stock currently stands. (See FB’s price targets and analyst ratings on TipRanks)