Wall Street analysts are racing to keep up with Facebook Inc. (FB:US)’s stock rally.
Shares of the world’s biggest social network have jumped 28 percent so far this year, compared with a 1 percent gain for the Standard & Poor’s 500 Index. The surge has left the 49 analysts (FB:US) who cover Facebook in a bind -- while 38 of them recommend the company with the equivalent of a buy rating, 16 of the total now have share-price targets below where Facebook is trading, data compiled by Bloomberg through shows.
That translates to an average 12-month price target of $72.92 for Facebook, just 1 percent above the company’s closing price of $70.10 today. With the stock advancing more rapidly than anticipated, the price targets -- many of which were calculated in 2014, with several dating back to last year -- would suggest that analysts on average see little upside to the stock. That may force some of the bulls to adjust their projections, with at least three analysts boosting their price forecasts this week.
“Facebook stock has just ripped past expectations,” said Richard Greenfield, an analyst at BTIG in New York, who in October recommended buying the shares with a $68 target over the next 12 months. At the time, Facebook was trading at $49. “We’re very happy with our rating upgrade to buy, but it has all happened super fast,” he said.
Tucker Bounds, a spokesman at Menlo Park, California-based Facebook, declined to comment.
Facebook’s stock surge underscores how the company’s prospects have improved following its rocky stock-market debut in May 2012. Chief Executive Officer Mark Zuckerberg weathered a 50 percent drop in the company’s stock price in the months after its initial public offering at $38, as investors questioned whether Facebook could come up with a mobile strategy with users increasingly accessing the social network from smartphones and tablets.
Since then, Facebook has pushed into mobile advertising. In January, it reported quarterly results that beat estimates, with more than half of ad revenue coming from mobile devices. Last month, Facebook ramped up its mobile business by agreeing to purchase WhatsApp Inc. for as much as $19 billion in cash and stock, betting on the mobile-messaging startup’s large international user base to accelerate growth.
While it isn’t unheard of for a company to trade above its average analyst price target -- 72 companies in the S&P 500 did so through the market close on March 11, according to data compiled by Bloomberg -- Facebook stands out because of how analysts almost unanimously agree their clients should buy the stock.
The company gets a 4.6 out of 5 in recommendation consensus (FB:US), which is how strongly analysts agree on whether a stock should be bought or sold. That puts Facebook in about the top 5 percent of the S&P 500, according to data compiled by Bloomberg. None of the analysts covering Facebook rates it a sell.
Those who track Facebook vary in how frequently they update their price targets. John Blackledge, an analyst at Cowen & Co., has changed his target six times since last June, while Dan Salmon, an analyst at BMO Capital Markets, has done so three times in that period. Facebook’s stock has traded above the average analyst price target several times in the past year, including during most of the month of September.
One analyst who unveiled a new price target yesterday was Eric Sheridan, an analyst at UBS. He changed his 12-month goal for the social network to $90 -- the highest among all who cover the stock -- up from a $72 target in January. Last April, his price goal was $26, according to data compiled by Bloomberg.
“We continue to favor Facebook as a core large cap Internet holding for excellent revenue growth at reasonable multiples to growth,” Sheridan wrote in a note to investors yesterday, adding that Facebook could reach $112 if it beats revenue estimates and advertisers gravitate toward new products.
Thomas Forte, an analyst at Telsey Advisory Group, also raised his price target for Facebook yesterday to $82, up from $70. Mark May, an analyst at Citigroup Global Markets Inc., raised his price target to $85 from $70 today.
Facebook’s rally has already left it trading at 120 times trailing 12-month earnings, making it more expensive than 98 percent of all companies in the S&P 500, according to data compiled by Bloomberg.
For some analysts, Facebook’s stock rise alone isn’t enough to justify a higher price target.
“You need to have a reason to adjust valuations beyond just because the stock has moved,” said Colin Sebastian, an analyst at Robert W. Baird & Co., who has a buy rating on the stock and last changed his price target five weeks ago to $65 from $54. “We conduct field checks and surveys throughout the quarter to assess business trends.”
Still, he said Facebook has plenty of wind in its sails. The company is experiencing “positive momentum in their mobile and advertising segments,” Sebastian wrote in an e-mail.
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