Baidu (BIDU) PT Lifted at Summit Research on MSCI, ‘Hold’ Maintained on Incrementally Negative on 020

Summit Research reiterated a Hold rating on Baidu (NASDAQ: BIDU), and raised the price target to $189.00 (from $169.00) following a recent China trip, meetings, and industry checks. Summit Research believes that BIDU shares’ strength in recent weeks was largely due to positive sentiment related to MSCI inclusion, rather than improving business fundamentals. Industry checks suggested large advertisers’ spending on Baidu remains solid for now, but deceleration is likely, mainly due to a large base and difficult economy. A recent face-to-face meeting with 58.com CFO suggests the company is to aggressively cut its budget on Baidu next year. However, industry checks also indicate some emerging categories such as P2P are likely to drive growth for Baidu in 2016.

Conversations with a private company in the space suggests the aggressive subsidies from established players continue. Meanwhile Summit Research heard that Baidu raised the base salary for its delivery employees recently to deal with winter labor shortage.

Analyst Henry Guo commented, "We believe BIDU shares’ strength in recent weeks was largely due to positive sentiment related to MSCI inclusion, rather than improving business fundamentals. During our recent China trip, we had meetings with Baidu’s IR, spoke with our industry contacts from search advertising agencies, and visited some private companies in the O2O space. Overall, while we remain comfortable with the company’s core search business, we are incrementally negative on Baidu’s O2O segments, especially its takeout delivery initiative. Considering the challenging macro-environment, increasing competitive O2O space, and low visibility to the company’s margin improvement trajectory, we reiterate our HOLD rating on BIDU share, but raise PT from $169 to $189, to reflect the positive impact from MSCI inclusion. Our PT of $189 is based on 28x P/E our 2016 non-GAAP EPS estimates."

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

Shares of Baidu closed at $214.11 yesterday.

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