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We Are Buyers of Facebook (FB) Stock Ahead of Earnings, Says Rosenblatt

With earnings season in full swing, the week is jam-packed with reports from major companies, including a slew of important earnings releases in tech. One report worth watching is social media giant Facebook (FB) which reports earnings today after the closing bell.

Knowing Wall Street’s expectations can provide context regarding investors’ overall sentiment toward the company. Analysts’ consensus estimates anticipate revenue of $15 billion, up 25% year over year, and earnings per share of $1.63, a slight decrease of 3% versus the prior-year quarter.

The high expectations have moved Facebook stock price up roughly 40% to $183 per share, so far in 2019. Solid numbers could propel the stock even higher, at least if you ask Mark Zgutowicz of Rosenblatt. The analyst reiterates a Buy rating on the stock, with a price target of $212, which implies nearly 16% upside from where the stock is currently trading. (To watch Zgutowicz’ track record, click here)

Zgutowicz commented, “We are buyers into Wed. night’s 1Q print for 3 primary reasons. First, while we expect 1Q revenue upside to be capped by est. bottoming (-8% y/y) 1Q News Feed (NF) pricing, we expect GAAP operating margin to better consensus by 100+ bps largely driven by lighter total expense growth (+44% y/y vs. consensus +47% y/y). Second, we expect confident management tenor with respect to NTM revenue given stable NF ad spend and improving y/y pricing dynamics vis-à-vis the anniversary of NF algo changes (2Q18), which removed non-relevant publisher and marketer content. Third, while Stories monetization remains tepid near-term, we expect the void to be filled with monetization tangibles relating to Instagram (IG) Checkout. Net-net, we believe the 1Q call begins to solidify a narrative of Stories and IG Checkout as potential meaningful ’20 revenue tailwinds, emphasizing what we believe to be low ’19E and ’20E revenue and earnings hurdles. See our 1Q earnings preview table below, with highlights of above mentions.”

Overall, Facebook stock stands as a ‘Strong Buy’ name among Wall Street analysts. In the last three months, FB has won 34 ‘buy’ recommendations versus only 6 ‘hold’ ratings. With a return potential of close to 8%, the stock’s consensus price target lands at $197.17. (See FB’s price targets and analyst ratings on TipRanks)


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