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Bob Peck: Barron's Is Wrong, Alibaba Worth $100

Mark Meadows
  • Alibaba Group Holding Ltd (NYSE: BABA) was indicated down 3 percent in Monday's premarket after having declined 38 percent year-to-date.

  • SunTrust's Bob Peck took issue with a Barron's article from this weekend that suggested the stock is more likely to fall 50 percent than rise 50 percent.

  • Peck said that Barron's "overstated" and "misconstrued" some of its negative points, while also raising "several fair issues."

In a Barron's cover article this weekend, Jonathan Laing argued that a 50 percent decline in Alibaba's stock was more likely than the stock pushing back towards $100. Bob Peck – who has a $100 price target on the stock – responded on Monday. Peck said the article "raised several fair issues," including declining growth and competition, but also "overstated / misconstrued" several other points.

Related Link: Barron's Recap: Why Alibaba Could Plunge Another 50%

Notably, Peck said many investors may be missing "hidden assets" on Alibaba's balance sheet, which total $40 billion. During a presentation last quarter, Alibaba said it had $33 billion in cash and investments; however, Peck said "rising valuations" for many of Alibaba's portfolio companies means that the value should be closer to $40 billion.

If Peck includes those assets (taxed at 40 percent), Alibaba's valuation is much closer to 14x than 17.4x 2017 expected earnings. That 14x valuation is "compelling," Peck added.

Further, Peck reiterated that Alibaba should see revenue growth of 29 percent despite any economic challenges. More importantly, however, Peck suggested that "core profitability margins" will be in the high 50 percent range, the result of "prudent" spending and fixed-cost leverage.

Peck suggested that Alibaba would reach $100 by the end of 2016. Given a pre-market price at $62.62 (down 3 percent from Friday's closing price), this increase would reflect 60 percent upside.

Latest Ratings for BABA

Date

Firm

Action

From

To

Sep 2015

Deutsche Bank

Maintains

Buy

Aug 2015

Morgan Stanley

Reiterates

Overweight

Aug 2015

Standpoint Research

Initiates Coverage on

Buy

View More Analyst Ratings for BABA
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