Raymond James Pounds the Table on Facebook (FB) Ahead of Q1 Results, Upgrades to 'Strong Buy'

April 26, 2013 9:11 AM EDT
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Price: $128.34 +1.36%

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    48 Buy, 9 Hold, 1 Sell

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Facebook (NASDAQ: FB) is getting a big vote of confidence Friday ahead of its first quarter results on May 1st. Raymond James analyst Aaron Kessler upgraded shares to a rare "Strong Buy," saying they are expecting ad strength in the quarter and believe shares have an attractive risk/reward profile.

Kessler cited four main reasons for his upgrade: 1) the expectation for increasing monetization driven by new ad formats (e.g. mobile app installs, unpublished page posts); 2) increasing ad load – we believe Facebook constrained its ad load in 4Q; 3) increasing mobile ad adoption –we believe our estimate for 6% q/q mobile ad growth will prove conservative; and 4) an attractive risk/reward – with shares trading at 15x and 11x 2013 and 2014 EV/EBITDA estimates, respectively, vs. an estimated 25% five-year EBITDA CAGR, we believe shares are attractive at current levels.

"We believe increasing advertiser adoption of new ad formats (e.g. mobile app installs and unpublished page posts), as well as increasing ad loads should drive strong ad growth in 1Q and upside to our and the consensus estimates," Kessler said. The analyst said checks with one of Facebook’s Strategic Preferred Marketing Developers (SPMD) indicates that certain ad units are now shown one time per user per day versus as little as one time per user per month just a few months ago.

While some investors have expressed concerns about mobile ad sales going into the results, Kessler said he sees strength "driven by increased smartphone usage, increasing ad loads, and advertisers’ adoption of newer ad formats (especially mobile app installs)."

On the quarter, the analyst sees revenues of $1.47 billion, which is slightly above the consensus of $1.44 billion. He sees non-GAAP EPS of $0.13 versus the consensus of $0.12.

Kessler maintained a $37 price target on Facebook, which represents 42 percent upside from Thursday's close.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

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