eBay Becoming More Focused; Argus Raises Its Price Target

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Argus reiterated its Buy rating and raised its price target on eBay Inc EBAY by $3 to $36 as the company looks to gain ground as a more focused e-commerce retailer post last year's Paypal Holdings Inc PYPL spinoff.

"Going forward, it will need to show that it can successfully carve out a niche among product sellers and resellers in the face of serious competition from Amazon and start-up category retailers like Etsy," analyst Joseph Bonner wrote in a note.

In the second quarter, eBay beat the high end of its revenue guidance range by $40 million and the high end of its non-GAAP EPS range by $0.01.

To counter the Amazon.com, Inc. AMZN threat, eBay focuses on creating and expanding verticals such as fashion and auto parts, and on improving selection within those verticals.

"E-commerce still accounts for only about 10.5% of U.S. sales, so the shift is still in its early stages. E-commerce growth rates have generally been in the mid-teens, or much faster than the low single-digit growth, at best, of total retail sales. Still, eBay's revenues are hardly immune to softer levels of consumer spending," Bonner highlighted.

In addition, mobile commerce along with social commerce is critical to eBay's future. The company is rolling out a new mobile application in 2016 and is running promotions with social networks such as Snapchat.

"One competitive advantage for eBay versus Amazon is that eBay does not compete against its merchants with its own direct sales," Bonner noted.

Bonner maintained his 2016 EPS estimate of $1.87 and 2017 forecast of $2.03. Consensus calls for EPS of $1.89 for 2016 and $2.09 for 2017.

Further, the analyst's new target price of $36 implies a P/E of 18-times Argus' 2017 EPS estimate, well below the peer average multiple of 32. The target price also represents an upside of 17 percent over Monday's close of $30.68.

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Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsArgus
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