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Facebook: Analysts Get Bullish July 10, 2013

Posted by Ishmael Chibvuri in Latest Articles!!!.

Social Media is now connecting millions of people all over the world. Personal news that would have taken hours, or even days to share via snail mail, phone conversations and email, can now be sent to hundreds of friends and contacts in seconds. And within minutes there are comments, likes and dislikes for everyone else to see. Facebook (FB) is working very hard to make it even easier to connect via a new tool called Graph Search which became available to millions of FB users on Monday:

Get ready for your Facebook search bar to start looking a little different. Starting Monday, Facebook will begin rolling out the advanced search feature it announced earlier this year to all users in the United States. Called Graph Search, the tool allows users to conduct more advanced searches — like "Restaurants in New York City my friends like" or "photos of my friends before 1996" — and get detailed results.

The only problem is that investors have not been as receptive. Last summer, shares of Facebook plummeted when the P/E ratio was around 72, and millions of additional shares were scheduled to be added to the float. Now the P/E ratio is over 500 which would give most investors a very valid reason to run away. However the current forward ratio is a much healthier 31.69. Analysts are suddenly bullish on the stock. According to Craig Smith, there are now 1.11 billion users on Facebook. And Instagram has over 130 million users. FOXBusiness recently reported that UBS is very bullish on the stock because of new ads that will begin appearing on Instagram:

The bullishness reflects new ad potential for Facebook, with UBS analyst Eric Sheridan projecting video ads would begin showing up through Instagram later this year…

"Our estimates assume that Facebook will be able to monetize daily video ad slots in the seven-figure range," he said, predicting that ads will begin appearing on Instagram during the second half of 2013.

In the last two months four analysts have upgraded Facebook from Hold to (3) Strong Buy and (1) Buy:

Recommendation Trends For Facebook Stock

Current Month Last Month Two Months Ago Three Months Ago
Strong Buy 12 10 9 8
Buy 13 11 12 13
Hold 10 13 14 13
Underperform 1 1 1 1
Sell 1 1 1 1

Data provided by Thomson/First Call

According to NASDAQ, the short interest has declined dramatically since last November when over 95 million shares were sold short. And the daily volume has gone up over the last year, changing the days to cover from five down to one. A large decline in short interest can be another very bullish signal:

Facebook Short Interest

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
6/14/2013 35,998,845 37,023,355 1.000000
5/31/2013 33,867,105 44,027,711 1.000000
5/15/2013 27,897,240 44,975,686 1.000000
4/30/2013 29,629,840 27,120,485 1.092526
4/15/2013 35,338,011 39,788,688 1.000000
3/28/2013 38,990,404 31,685,412 1.230547
3/15/2013 32,235,485 39,993,643 1.000000
2/28/2013 28,492,068 46,292,214 1.000000
2/15/2013 25,392,181 53,251,976 1.000000
1/31/2013 20,540,598 70,742,962 1.000000
1/15/2013 25,470,575 89,690,457 1.000000
12/31/2012 26,392,950 49,138,849 1.000000
12/14/2012 55,158,535 69,448,320 1.000000
11/30/2012 56,892,233 82,315,962 1.000000
11/15/2012 95,301,361 62,105,481 1.534508
10/31/2012 87,988,874 74,059,902 1.188077
10/15/2012 73,385,252 32,630,000 2.249012
9/28/2012 77,992,874 53,146,893 1.467496
9/14/2012 87,560,446 58,118,623 1.506582
8/31/2012 85,350,481 59,995,689 1.422610
8/15/2012 87,984,040 38,986,997 2.256753
7/31/2012 61,325,822 34,175,438 1.794441
7/13/2012 56,718,300 12,078,975 4.695622

The range in target price reflects the company’s past mistakes, combined with its new bullishness. The low is $21 a share, versus an optimistic $40, which would give a very healthy upside to the current price of $24.71 at Monday’s close.

Facebook Price Target Summary

Mean Target: 32.80
Median Target: 33.00
High Target: 40.00
Low Target: 21.00
No. of Brokers: 31


I am usually not willing to recommend a stock that has such undesirable fundamentals. However, there are many other things involved in judging a company. This new bullish turnaround by analysts can not be ignored. That does not mean that they will be right. Each and every stock is a gamble one way or the other. But Facebook looks like a very attractive investment right now before earnings are announced in two weeks:

Facebook announced that the company’s second quarter 2013 financial results will be released after market close on Wednesday, July 24, 2013. Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET the same day.

Earnings are expected to be 14 cents a share, up two cents compared to last year. And revenue is projected to be up over 36%. That could be enough to really move the shares upward. Again, this is pure speculation at this point, so don’t bet the rent money.

Source: http://seekingalpha.com/article/1540622-facebook-analysts-get-bullish?source=email_investing_ideas&ifp=0



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