Facebook (FB): This Category Could Send Facebook Stock Soaring

Facebook stock

Facebook (FB) stock hit another all-time high on Wednesday, gaining more than 1 percent at $122 and change, a price-per-share that made the online social networking giant worth more than $350 billion. The stock is up more than 15% this year and will most likely continue its upward trend as the company keeps growing at a rapid pace. According to Raymond James’ analyst Aaron Kessler, who analyzed several key points from the latest report published by Facebook’s top ad seller Nanigans, it was revealed that the company’s second-quarter 2016 growth in global advertisement is likely to be well above consensus of 11.5 percent. Kessler said he expects Facebook’s global ad revenue to grow about 14% during the current quarter. It’s worth noting that Facebook’s main revenue source is advertising. During 1Q16, the company generated $5.2 billion of ad revenue, representing almost 97 percent of its total income.

Alongside Raymond James, Wedbush analyst Michael Pachter also issued a research report on Facebook, saying that several data points including strong mobile ad momentum suggest positive results are on tap. The analyst, who thinks Facebook’s momentum will be driven by areas of the world aside from the U.S. and Europe, predicts that the California-based company will be able to expand the monetization of its under-penetrated assets like Instagram, WhatsApp and Messenger aside from the Facebook website. Pachter also notes FB has a “virtually insurmountable” competitive advantage thanks to its 1.6 billion active users, and 1.09 billion daily active users-a number that in Q1 hit a 16 percent increase on a year-over-year basis.

“Facebook is a great company, period,” the analyst writes, while reiterating an $145 12-month based case estimate and ‘Outperform’ rating on the name.

Wedbush also said it expects Facebook’s second-quarter results to beat expectations. The company is scheduled to report earning after the market close next Wednesday, July 27. The Street is looking for earnings per share [EPS] of $0.81 and revenue of $6 billion. Last quarter, Facebook posted a significant earnings surprise of 24.19%, reporting EPS of $0.77, $0.15 better than the Street’s consensus estimate of $0.62. Revenues jumped 48.30% year-over-year to $5.25 billion versus the $3.54 billion reported. For the full year, analysts expect earnings to rise 56%, followed by a 30% gain in fiscal-year 2017. Meanwhile, EarningsWhisper.com reports a 2Q16 whisper number of $0.84 per share.

Given Facebook’s continual growth in active monthly users, ad business, and strong fundamentals, a breakout from an early-stage base towards the $125 level in FB stock could come soon.

Facebook’s Valuation Metrics

Analysts from most firms remain positive on the social networking site heading into the print. Of 43 analysts who follow the stock, 38 rate the name a ‘Buy’ versus 4 rating it a ‘Hold’. Only one analyst rates FB a ‘Sell’. Their median price target, or where analysts expect the stock’s price to go, is more than 20 percent higher than the current share price.

FB shares are currently priced at 73.77x this year’s forecasted earnings. The company’s current year and next year EPS growth estimates stand at 56.60% and 29.70% compared to the industry growth rates of 8.60% and 20.20%, respectively. FB has a trailing-12 price/sales ratio of 17.64. EPS for the same period registers at 1.64.

In the past 52 weeks, shares of Facebook have traded between a low of $72.00 and a high of $122.20, with the 50-day MA and 200-day MA located at $116.08 and $111.14 levels, respectively. Additionally, shares of Facebook trade at a P/E ratio of 0.99 and have a Relative Strength Index (RSI) and MACD indicator of 64.43 and +3.49, respectively.

Facebook currently prints a one year return of about 24%, and a year-to-date return of around 16.50%. Since Facebook stock traded at around $18 per share in August 2012, the stock has risen almost 550 percent, or about 102 points, to Thursday’s close.

Shares dropped $1.37 to $120.55 in recent trading.

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