J.P. Morgan Slashes MercadoLibre Estimates: Here's Why

In a report published Monday, JP Morgan analyst Andre Baggio maintained a Neutral rating on

, while lowering the price target from $151 to $136. Fx headwinds have been putting pressure on the company's margins. Given that more than half of the company's EPS and free cash flow is generated from Brazil, the EBITDA estimate for 2016 has been cut by 9 percent, while the EPS estimate for 2016 has been lowered by 12 percent, due to the weaker Brazilian currency. "We remain long-term positive on MELI, which we see as a solid play into the LatAm ECommerce space, but we advise investors to look for a better entry point," Baggio explained. However, the non-marketplace revenue estimates have been raised, "driven by Pago growth, compensating for a decline marketplace revs, which have higher margins," according to the JP Morgan report. The analyst also expects a higher tax rate of 35 percent in Argentina in the forthcoming quarters, while expecting the company to be able to take advantage of the Argentinian tax holiday pf about 18 percent. "We remain long-term positive on MELI, given: (1) underpenetration of LatAm e-commerce… (2) strong positioning… and (3) asset light business model, generating cash and earnings, while being able to grow well," Baggio added. Mercadolibre has successfully implemented various strategic initiatives, such as shipping, free consumer financing and Pago. However, there appears to be limited upside to the stock going forward, given the recession in Brazil, with JP Morgan expecting another two years of GDP contraction.