Top Analyst Dials Down Price Target on Alibaba (BABA) Stock on Back of Greater Macro Uncertainty


Alibaba (BABA) shares are tumbling nearly 3% in Friday’s trading session, after the Chinese e-commerce giant cut its full-year sales forecast due to concerns about the economic impact of a U.S.-China trade spat, which the company expects will dent revenue ahead of its top sale season.

Specifically, the company cut its forecasted annual revenue target by four to six percent — within a range of RMB 375 billion to RMB 383 billion. In addition, the company fell short of market expectation as it rang up RMB 85.15 billion ($12.4 billion) in revenue during Q2 2019, coming in slightly below consensus estimate of RMB 86.7 billion. To the company’s credit, Q2 earnings-per-share of 9.60 yuan ($1.40), came in well above the 7.43 yuan expected by the Street.

In reaction, SunTrust’s top analyst Youssef Squali reiterates a Buy rating on Alibaba stock, while lowering the price target to $180 (from $195), which represents a potential upside of 21% from where the stock is currently trading.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 19.2% and a 66% success rate. Squali has a 16.2% average return when recommending BABA, and is ranked #69 out of 4908 analysts.

Squali wrote, “We maintain a Buy and a bullish LT thesis on BABA, but lower our estimates/ PT to $180 from $195 on greater macro uncertainty, and mgmt’s ensuing decision to postpone monetization of incremental inventory from the new recommendation feed to protect merchants’ ROI. Core commerce growth remains strong, enjoying market share gains and stable margins to fund new initiatives. Additional downside risk to growth and margins exists if the macro worsens, but BABA’s dominant position online, growing/diversified offering and China’s on-going consumption upgrade/digitization should help BABA outperform.”

“We’re tweaking our estimates/PT to reflect 2Q results and latest FX rates. For FY19, we now expect rev./EBITA/adj. EPS of CNY 378.92B/106.10B/33.58 vs. CNY 390.95B/121.32B/34.70, previously. Our top line estimate assumes 51.4% Y/Y consolidated growth and 40.9% organic growth,” the analyst added.

Net net, most analysts on Wall Streets are out rooting for the retail giant to be a winning stock pick, as TipRanks analytics showcase BABA as a Strong Buy. Based on 22 analysts polled by TipRanks, all 22 are bullish on the stock. The 12-month average price target stands at $218.27, marking a nearly 48% upside from where the stock is currently trading. (See BABA’s price targets and analyst ratings on TipRanks)

 

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