Olympic Hangover Could Sink Shares of Baidu (BIDU) -Canaccord Adams

Following a very successful Olympics, Canaccord Adams believes Baidu.com (Nasdaq: BIDU) could face a substantial slowdown in 2009 amid a weakening global economy and accelerating inflation. The firm maintains a Sell rating on shares of Baidu and has a $265 price target on the stock.

The firm cites several issues that could put downward pressure on shares of Baidu:

• growing inflation concerns in China: consumer prices were up 7.1% in June and up 6.3% in July
  
• currency appreciation has led to a 4.2% and 2.3% appreciation on the RMB during the first two quarters of this year
  
• GDP estimates for China are expected to fall to around 8%
  
• due to interruptions from the Olympics, Canaccord sees slowing growth in the back half of this year and,
  
• high valuations, ongoing MP3 litigation and lagging operating cash flow compared to sales and EPS growth could weigh on shares.

While Canaccord is decidedly negative on Baidu.com, the firm also points out several positives:

• Baidu's search engine remains to be the third-largest globally
  
• China is planning a stimulus package for about $58 billion, or 1-1.5% of GDP, during the second half of this year. The government is also expected to ease monetary policy over this period, and
  
• central banks are raising national and regional lending quotas by 5% and 10%, extending about $26 billion in lending for the rest of '08.

With shares of Baidu trading around $324 this morning, Canaccord's $265 price target represents a potential decline of about 18% from current levels.

Baidu.com, Inc., through its subsidiaries, provides Chinese language Internet search services primarily in the People's Republic of China.

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