Facebook FB saw its stock price jump 3.5% during regular trading Wednesday. The move is part of a somewhat larger surge for the social media behemoth over the last week on the back of Citron Research’s bullish report. So, let’s see why Facebook stock looks like a buy at the moment.
Citron published a report last week that said Facebook stock could reach $160 per share in 2019 because its 2018 scandals didn’t truly impact the company’s user base or revenues. The basic reasoning for Citron’s Facebook optimism centers around the social media company’s massive user base—which should help Facebook attract even more advertisers as non-ad supported platforms like Netflix NFLX and Amazon Prime AMZN steal people away from linear TV.
The firm also contended that Facebook is hardly the “evil” corporation that it has been portrayed as for much of the last year. Plus, Citron called Facebook its “2019 S&P Stock of the Year” in a report titled “Backing Up the Sleigh on Facebook.”
Shares of Facebook climbed over 8% last Wednesday on the back of Citron’s report. FB stock closed regular trading up 3.50% on January 2 at $135.68 a share. Despite Facebook’s recent climb, FB stock still has roughly 18% to climb before it hits Citron’s $160 price point. Plus, Facebook rests 38% below its 52-week high of $218.62.
Going forward, Facebook and CEO Mark Zuckerberg will likely continue to face scrutiny from government officials in both the U.S. and the U.K. Meanwhile, Twitter TWTR, Google GOOGL, and other firms face similar scrutiny over their outsized control over the spread of information. Yet, investors and the public might soon realize that Facebook and these firms are part of a much larger privacy debate.
With that said, Facebook plans to spend billions of dollars to try to fix its user data and “fake news” problems, which will help the company’s operating margin fall into the "mid-30s on a percentage basis" over a more than two-year period. For reference, Facebook’s operating margin slipped from 50% in Q3 of 2017 to 42% last quarter.
Looking ahead, Facebook’s Q4 revenues are projected to jump 26.4% to reach $16.4 billion, based on our current Zacks Consensus Estimate—Q3 revenues climbed 33%. Meanwhile, the firm’s fiscal 2018 revenues are projected to surge by 36.1%. Plus, Facebook’s 2019 revenues are expected to climb 23.8% above our 2018 projection to hit $68.51 billion.
Moving on, the firm’s adjusted Q4 earnings are expected to slip 1.4% from the year-ago period to reach $2.17 a share. This is hardly great news, but the company’s full-year fiscal 2018 earnings are expected to jump 19.6%.
On top of that, Facebook has seen its earnings estimate revision activity turn more positive recently. This helps us see that at least some analysts are more positive about the company’s bottom-line outlook than they were not too long ago.
Facebook is currently a Zacks Rank #2 (Buy) based, in large part, on its recent upward earnings revision trends. Investors should also note that FB is trading near its all-time low forward P/E at 17.8X forward earnings estimates. Therefore, it is not too much of a stretch to say that Facebook stock is “cheap” at the moment since it has traded as high as 31.5X in the last 12 months and 68X over the last five years.
Overall, it is unclear what Facebook stock will do amid the current market conditions. But it seems pretty straight forward to say that Facebook and its 2.27 billion monthly active users will remain a powerhouse for the foreseeable future, especially as Instagram becomes more popular with users and advertisers.
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