The phrases “flattening the curve” and “social distancing” are among those most likely to pop up in future discussions recalling the coronavirus pandemic of the early 21st century. But among students of Wall Street’s behavior during the period, the phrase “lowering estimates” might get a few mentions, too.
As valuations have plummeted, stocks are currently selling at significant discounts due to COVID-19’s restructuring of the market. Facebook (FB), the world’s most successful social media platform, hasn’t been immune to the viral impact, and the stock is down by 24% year-to-date. What’s more, with advertising budgets getting slashed around the globe, the economic outlook for the social media giant is not as rosy as before.
5-star Monness analyst Brian White argues the “new reality” will impact Facebook’s top and bottom line. As a result, the analyst recently lowered revenue and EPS estimates for Facebook. For 1Q20, the revenue estimate comes down from $18.47 billion to $16.97 billion, while the EPS forecast is lowered to $1.47 from $1.83. For the whole of 2020, White’s revenue estimate comes down from $86.43 to $78.93 billion. The 2020 EPS forecast is reduced from $9.50 to $7.68.
Despite the reductions, White maintains a Buy on Facebook, but the price target gets a trim, too, cut from $260 to $230. The upside potential from current levels is 41%. (To watch White’s track record, click here)
White’s new estimates are not a reflection of a loss of confidence in Facebook’s model. White notes Facebook’s leading position among social platforms and “strong secular tailwind of digital advertising” as reasons to remain confident in its continued success. But as companies reeling from the economic implications of coronavirus reduce advertising budgets, the inevitable decline in Facebook’s major source of revenue will impact future earnings.
White explained, “We expect the shift from traditional advertising to digital advertising will continue; however, all advertising spending is sensitive to the vicissitudes of the economy… Given this new economic reality, we believe it will be difficult for digital advertising spending to escape the impact of the COVID-19 crisis.”
Overall, Facebook gets widespread support from the Street. 37 Buys, 2 Holds and a single Sell all add up to a Strong Buy consensus rating. Should the average price target of $243.06 be met in the coming months, investors stand to pocket a 49% gain. (See TipRanks’ Analysts’ Top Stocks)