SunTrust Robinson Humphrey Downgrades Twitter (TWTR) to Neutral, Valuation 'Stretched'

December 16, 2013 7:22 AM EST
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Price: $16.58 -1.25%

Rating Summary:
    7 Buy, 36 Hold, 11 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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SunTrust Robinson Humphrey downgraded Twitter, Inc. (NYSE: TWTR) from Buy to Neutral citing valuation after the stock has surpassed their 2014 $50 price target by 20%.

Analyst Robert Peck states: "We remain extremely positive on the long term opportunity for the company due to several factors: Twitter has become one of the major Internet platforms, the company is still in a very nascent stage of its life cycle; Twitter has significant optionality in front of it; and the company has a strong management team with a unique vision of permeating the "interest graph.""

That said, Peck note after IPOing on Nov. 7 at $26 shares have more than doubled to $59 in just over a month. More interestingly, Peck notes, is the fact that the stock has run over 40% in the last 2 weeks on several announcements, but nothing truly significant or unexpected, including: Apple buying Topsy; roll out of Tailored Audience; direct messaging of photos; and MoPub native ads implementation. "We think all of these announcements are positive, but expected and they don’t fully explain the recent stock run," he said.

Valuation has become stretched, Peck notes. "While we think the long term potential for Twitter’s valuation is much higher, we think in the near term it has become stretched. On consensus 2014 revenue and EBITDA estimates, it trades at 36x and 295x (34x and 235x based off of our estimates). On 2015 consensus, the company still trades at significant premiums, at 23x and 125x (over 20x and 113x our estimate). In comparison, the average of other industry fast growers is 8x 2015 Revenues and 24x 2015 EBITDA. EPS and FCF valuation multiples are non-meaningful given their nascent positive turn."

For an analyst ratings summary and ratings history on Twitter, Inc. click here. For more ratings news on Twitter, Inc. click here.

Shares of Twitter, Inc. closed at $59.00 yesterday.

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