Facebook: 40 Days and 40 Nights in Wall Street Wilderness, Still No Love from Analysts
July 2, 2012 (TSR) – After spending 40 days and 40 nights in the figurative wilderness, Facebook (FB
) has emerged from its temporary exile only to find out that Wall Street pretty much feels the same about it today as it did a month ago, which is to say, mixed.With the passing of the mandatory analyst quiet period
on Wednesday, nearly three dozen analysts were able to regain their voices after 40 days of silence. The ensuing deluge of research was expected to extend the stock’s recent rally, possibly even back to its $38 a share IPO price. But the reports were largely inconclusive, resulting in conflicts of opinion that essentially leave investors to fend for themselves.About half
of the analysts who have published opinions, including those affiliated with the IPO lead managers Morgan Stanley (MS
), Goldman Sachs (GS
), and JPMorgan (JPM
), initiated coverage “buy” or “overweight” ratings. The other half of consensus were far less excited about the prospects for the social networking company’s stock, including Citigroup (C
), Bank of America Merrill (BAC
) and Barclay’s (BCS
); all of whom came out with “neutral” or “equal-weight” ratings this week. They join analysts like Scott Kessler from S&P Capital IQ, who raised his opinion from “sell” to “hold” on June 5th with a $27 price target.
“We see significant growth opportunity for the company, but a lot of risks, and a valuation that we think is pretty full at this point,” Kessler says in the attached video. “There’s no question that the company has grown revenues significantly, but we’re concerned about the level of spending that we’ve seen recently, and expect to continue to see.”
Of course, the need for Facebook to grow and invest is not a new revelation as business investment spending is designed to drive growth, be it through acquisitions, such as its purchases of Face.com and Instagram, as are its plans to expand overseas or to grow its mobile business. The only unknown here is the actual pace and amount of money that will be spent to achieve its goal, as well as where it will be spent.
In the meantime, the stock has had a tremendous short term rally, gaining almost 30% from its lows at the start of the month, due in part to expectations that new coverage would be more positive. The Facebook focus will now shift to earnings due out in late July, followed by the expiration of the 90-day lock-up period for insiders on August 16th.