Shares of Alibaba Group Holding Ltd. shot up to a 1 1/2-year high in active trade Friday, after the China-based e-commerce giant was upgraded at Raymond James, which cited strong quarterly results and an attractive valuation.
Aaron Kessler, analyst at Raymond James, raised his rating to a strong buy, after maintaining an outperform rating since he began covering Alibaba nearly two years ago. Kessler raised his stock price target to $124, which is 26% above current levels, from $95.
Alibaba’s stock ran up 7.1% to close at its highest level since Jan. 28, 2015. It has advanced 12.5% since it reported fiscal first-quarter results before Wednesday’s open, the best two-day stretch for the stock since it went public on Sept. 19, 2014.
Volume was 71.7 million shares, nearly six times the full-day average of 12.5 million shares, according to FactSet, and enough to make them the most-actively traded on U.S. exchanges.
Kessler offered several reasons for his more bullish view:
• Total retail revenue increased 49% to $3.52 billion, which was 6% above his estimates, because of strength in gross-merchandise volume growth and strong monetization gains.
• A big jump in monetization rates to 2.79%, in the latest quarter from 2.49% the previous quarter. The company showed improvements in both mobile, to 2.8% and desktop, to 2.78%.
“We would note this is the first quarter mobile monetization has exceeded desktop,” Kessler wrote in a note to clients.
• The cloud business is expected to continue to produce rapid growth—it nearly tripled in the latest quarter—and should remain the leader in China. Kessler said he believes cloud revenue is “well on track to reach a $1 billion run rate” by the end of the year.
• Strength in core margins, in which earnings before interest, taxes and amortization—a common measure of cash flow—grew 61% in the latest quarter.
• Shares are attractively valued, as 12 times calendar-year 2017 estimates of core-commerce earnings a share, compared with his expectations of 20% core long-term growth.
For Raymond James, stocks rated strong buy are expected to produce total annualized returns of at least 15%, and outperform the S&P 500 over the next six to 12 months. The S&P 500 has gained 6.8%, so far in 2016, as of midday Friday.
Kessler wasn’t alone in being more bullish on Alibaba. Of the 42 analysts surveyed by FactSet, three others raised their ratings, and 25 others lifted their stock price targets since Alibaba reported results.
Source: Market Watch