Analysts Mixed on Facebook Stock
06/27/2012| 08:55am US/Eastern
-- Ratings by underwriting banks not as bullish as some expected
-- "Quiet period" ended Tuesday
-- As of early Wednesday, FB receives eight buy ratings, nine hold ratings and one sell rating
Analysts at Facebook Inc.'s (>> Facebook Inc) underwriting banks chimed in with ratings Wednesday--and the reviews weren't as bullish as some had expected.
The 40-day "quiet period" for analysts at banks that underwrote the initial public offering came to an end Tuesday, and the new voices were a mixed bag. As of early Wednesday, the social-media network had received eight buy ratings, nine hold ratings, and one sell rating.
Four of the seven underwriting banks given the most shares to distribute--Barclays, Citigroup Inc. (C), Credit Suisse and Bank of America Merrill Lynch --rated the stock at neutral. BMO Capital Markets, which received fewer than one million shares to distribute, rated the stock at underperform, an equivalent to sell, and assigned it a $25 price target. Shares of Facebook were down more than 2% in premarket trading, after closing Tuesday at $33.10.
Credit Suisse was the least bullish of the big, so-called bulge-bracket banks, giving the shares a price target of $34 and rating the stock at neutral.
"As the leading social-media platform, we view Facebook as well positioned to capitalize on social-media growth. However, valuation appears to account for a fair amount of this upside, limiting our near-term enthusiasm," wrote Credit Suisse analyst Spencer Wang.
Morgan Stanley (MS), J.P. Morgan Chase & Co. (JPM), and Goldman Sachs Group Inc. (GS), the three banks that distributed the most shares, all rated the stock at buy. Morgan Stanley, the lead underwriter of the offering, initiated the stock with a $38 price target, the price at which the shares were offered. They haven't traded at that level since shortly after the IPO. Goldman and J.P. Morgan were more bullish, targeting $42 and $45 for the shares, respectively.
Morgan Stanley, currently under fire for its leadership of the troubled IPO--which was beset by trading problems on the day of its Nasdaq Stock Market debut--gave a vote of confidence to the future of Facebook's mobile business. But firm analyst Scott Devitt named advertising pricing as a key risk for the company.
BMO analyst Daniel Salmon said Facebook's advertising service was a main reason he rated the firm a sell. "With user growth decelerating," he said, "pricing power will be required to support valuation, and we believe this will be a challenge in light of industry-wide declines."
Ratings from the underwriters of the Facebook deal were expected to receive considerable attention. The group has been under fire for pricing the deal at $38, which some market watchers have argued was too high, given the stock's fall since.
More than a dozen analysts initiated coverage of the stock before the quiet period ended. Analysts with smaller firms or banks were able to issue opinions because they weren't involved in the IPO. The group is mostly mixed on Facebook's prospects, giving the stock an average price target of $37.80. Herman Leung from Susquehanna International Group is still the most bullish on the Street, rating the stock outperform with a $48 price target. Bernstein Research's Carlos Karjner maintains his position as Facebook's biggest bear, with a $25 price target and an underweight rating.
From 2006 through 2011, 700 companies launching IPOs have received an average initial analyst rating of "hold" or "buy" after 40 days, according to data from Ipreo, a capital-markets research and advisory firm. Only seven IPO firms have received average analyst ratings of "sell."
Morgan Stanley, J.P. Morgan, Goldman Sachs, RBC Capital Markets, Wells Fargo & Co. (WFC), Oppenheimer & Co., Piper Jaffray Cos. (PJC), and William Blair all have buy ratings on the stock, or equivalents like outperform or overweight. The nine underwriting banks that rate the stock at neutral outnumber the bulls: Bank of America, Barclays, Citigroup, Credit Suisse, Lazard Capital Markets, Raymond James, Stifel Nicolaus, Cowen & Co., and Pacific Crest. BMO is the lone bear among the underwriters, rating the stock underperform.
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