Today, Rosenblatt analyst Mark Zgutowicz initiated a new bullish coverage on Facebook (FB) shares, with a Buy rating and price target of $213, which implies an upside of 39% from current levels. (To watch Zgutowicz’s track record, click here)
There have been some concerns that earnings may fall short of forecasts, however, Zgutowicz sees this anticipated shortfall priced in the shares. As such, the analyst recommends investors buy FB stock in front of upcoming Q3 print. While CY19 will be a year of rebuild, the analyst sees a bottoming for News Feed (NF) fatigue and enough light ahead with new product innovation and ad unit optionality including with Instagram and Watch longer-term.
Zgutowicz opined, “Despite a significant revenue and earnings reset last quarter, and a history of conservative guidance, there appears to be little confidence in current expectations, noting the stock is trading near 1.2x the S&P, an all-time low. At a high level, expected returns on investment in Facebook the technology company are being overshadowed by zero-dollar returns on content/user safety and security investment in Facebook the publishing company. While the latter investments are essential for Facebook to push the innovation curve, these new industry standards have become a heavy weight on technology returns. It is now a wait and see over the next 6-12 months on the net effects on revenue and margin trajectory and the likelihood for another modest bump along the way.”
“With that said, there is no change in the unmatched relative reach and targeting Facebook offers advertisers. One can argue NF engagement fatigue has put a wrinkle in these dynamics, however with innovation in products and features focused reducing fatigue and increasing utility – IG Stories a prime example – its relative targeting and subsequent ROI should continue to distance Facebook from emerging alternatives. We see engagement premiums coming from multiple new features in IG and Messenger, as well as new products like Facebook Watch and IGTV, both of which extend into YouTube demos,” the analyst added.
Net net, Wall Street’s confidence backing the social media giant is strong, with TipRanks analytics showcasing FB as a Strong Buy. Based on 40 analysts polled in the last 3 months, 33 rate a Buy on Facebook stock, 6 issue a Hold, while only 1 recommends a Sell. The 12-month average price target stands at $204.20, marking a nearly 31% upside from where the stock is currently trading. (See FB price targets and analyst ratings on TipRanks)