Alibaba Group Holding Limited (BABA, Financial)
Alibaba is currently trading at $78.97 per share, down 0.80% or 64 cents on April 15. The company is expected to release its quarterly earnings report on May 5. According to Zacks Investment Research, the consensus forecast by analysts is that Alibaba will post first quarter EPS of 39 cents. If this comes to pass, it will be 19 cents higher than the year-ago quarter. The quarterly earnings surprise history of Alibaba provides positive and negative insights for traders and investors looking to profit off the stock ahead of its earnings reports. The following four quarterly earnings surprises are cases in point:
- On May 7, 2015, the consensus EPS forecast was 28 cents and the actual EPS was 20 cents, leading to a -28.57% earnings surprise.
- On Aug. 12, 2015, the consensus EPS forecast was 41 cents and the actual EPS was 34 cents, leading to a -17.07% earnings surprise.
- On Oct. 27, 2015, the consensus EPS forecast was 32 cents and the actual EPS was 38 cents, leading to a +18.75% earnings surprise.
- On Jan. 28, the consensus EPS forecast was 70 cents and the actual EPS was 73 cents, leading to a +4.29% earnings surprise.
Ratings upgrades and downgrades
What makes Alibaba all the more interesting is the recommendation summary for the upcoming week. Analysts peg the stock at a rating of 1.8 on a scale of 1.0, which is a strong buy, and 5.0, which is a strong sell. The stock currently has a high target price of $116.84 and a low target price of $59.92. The situation becomes even more interesting when we take upgrades/downgrades into account. The following four previous recommendations by research firms paint an improved picture of Alibaba:
- On Oct. 29, 2015, Standpoint Research downgraded the stock from a buy to a hold.
- On Jan. 7, Robert W Baird initiated an outperform rating on the stock.
- On Feb. 23, JPMorgan initiated an overweight rating on the stock.
- On April 15, Needham rated Alibaba as a buy.
In terms of analyst estimates, for the current quarter the average estimate is 3.60 with a high of 4.59 and a low of 2.41. For the June 2016 quarter (Q2), the average estimate is 4.43 with a high estimate of 5.04 and a low estimate of 3.69. In terms of revenues for the current quarter, the average is $23.62 billion with a high of $35.72 billion and a low of $21.61 billion. Alibaba is expected to generate sales growth of 35.50%. Overall, the consensus opinion of analysts is that Alibaba is regarded as a hold. The reasons for this are mixed, with both strengths and weaknesses working in favour of and against the stock.
In terms of growth factors, Alibaba features a solid return on equity, a stable financial position and remarkable revenue growth. The company also has acceptable debt levels for a corporation of its size and scope. On the flipside, Alibaba has not been performing according to expectations over the past financial year. If we look back over the past two years, the EPS performance was $1.64, and over the past year the EPS performance was $1.66.
Spread betting traders generally tend to have an upbeat opinion of Alibaba ahead of its earnings reports. Several important developments have been taking place, including the $1.25 billion investment in a food delivery app, the buy rating associated with Alibaba at Needham, and the $1 billion investment that Alibaba recently made in the southeast Asian internet giant Lazada. These are all reasons to be hopeful about the future prospects of the company, given that the Chinese economy is slowly starting to turn the corner.
