Twitter, A Stock For The Highly Risk-Tolerant Investor

Following an impressive third-quarter earnings report, Argus analyst Jim Kelleher upgraded Twitter Inc TWTR from Hold to Buy.

A combination of rising user engagement, earnings growth and 2018 revenue growth guidance are all reasons to like the stock, Keheller said in a Friday note. (See Keheller's track record here.) 

The stellar third quarter will likely lead to rising 2018 estimates across Wall Street, the analyst said. Argus has raised its full-year 2017 non-GAAP EPS estimate from 29 cents to 41 cents and raised its 2018 EPS target from 35 cents to 50 cents. In the longer term, the firm raised its annual EPS growth forecast from 8 percent to 10 percent.

“While acknowledging the challenges facing the company, we recommend TWTR for highly risk-tolerant investors with the patience for what will likely be a long-term turnaround,” Kelleher said.

In the near-term, investors should expect some turbulence in the stock as its advertising revenue and user growth trends stabilize, Keheller said. Argus is now calling for Twitter to return to revenue growth in the first half of 2018. The company’s relative strength in data and enterprise solutions should help boost margins as well, Kelleher said.

Twitter is a difficult stock to value due to the fact that is it still in the early stages of a long-term growth story, Keheller said. Twitter trades at 41.5x Argus’ 2018 earnings projections. Robust growth in revenue, earnings and cash flow suggest Twitter could have a better valuation picture down the road.

In addition to the Buy rating, Argus has a $25 price target for Twitter.

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