Merrill Lynch Boosts Price Target on Alibaba Group Holding Ltd (BABA) Amid Supermarket Promotion

Merrill Lynch analyst Eddie Leung is out with a research report on shares of Alibaba Group Holding Ltd (NYSE:BABA) on the heels of new consumer subsidy offerings from both JD and TMall in their supermarket channel, where the analyst notes an overall 50% discount on orders hitting around RMB200.

Leung reiterates a Buy rating on BABA, while lifting the price target from $110 to $117, which represents a nearly 14% increase from where the shares last closed. Additionally, in light of a raise in “DCF value of its operation,” Leung boosts his EPS projection for the fiscal year of 2019 up 5%, taking into account an increase in ARPU on back of repeat purchases coupled with “cross-selling in [the] future.”

“Although we had already modeled higher op expenses after 1QFY17 (2Q2016) for the campaign, we conservatively tune up marketing spending est. further by ~RMB1b during the remaining of FY17 and FY18 to cater for more intense and longer competition. Both companies aim at increasing user stickiness and cross-selling on their platforms to handle a gradual deceleration of the industry (Chart 1), leveraging the high-frequency and repetitive nature of the channel’s purchases,” Leung concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Eddie Leung is ranked #215 out of 4,163 analysts. Leung has a 69% success rate and yields 24.4% in his yearly returns. When recommending BABA, Leung realizes 6.5% in average profits on the stock.

TipRanks analytics exhibit BABA as a Strong Buy. Based on 22 analysts polled in the last 3 months, 20 rate a Buy on BABA, while 2 maintain a Hold. The consensus price target stands at $110.44, marking a 7% upside from where the stock is currently trading.

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