Argus Says Buy Facebook, Sets $115 Price Target

• Facebook Inc FB shares have risen 18.75 percent year-to-date, from a low of $74.05 on January 15.
• Argus’ Joseph Bonner has upgraded the company from Hold to Buy, with a price target of $115.
• Bonner believes that the company has successfully transitioned from desktop to mobile, with two of the most popular smartphone apps in the US.

According to the Argus report, “The company also continues to gain traction on monetization through increased advertising, to broaden its appeal to users, and to enter new areas such as virtual reality and messaging.”

On the other hand, the launch of Oculus, Facebook’s virtual reality headset, is expected to impact margins in the near term, Bonner believes that he company would continue to be the “dominant social media site.”

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Oculus is set to be launched just in time for the holiday season, with the company announcing a November 2105 release. Facebook has partnered with Samsung to produce this “Gear VR,” which is expected to be available for a retail price of $99 and would be compatible with Samsung’s latest smartphones.

In addition, Oculus has also started to partner for content, such as streaming TV and movies, as well as video games. However, “Oculus-ready PC hardware” will only become available in early 2016.

“In another foray into e-commerce, Facebook has begun testing the addition of a new shopping section on its mobile app. The new section will direct users who click on an ad to a full-screen catalog rather than just to the advertiser's website,” Bonner reported.

This is expected to offer the company more access to user data. In addition, the company has “continued to innovate to make its advertising more user-friendly and relevant, particularly on mobile,” the report added.

Given that Facebook stock valuation is in-line with that of its peers, Bonner believes that this does not appropriately reflect the company’s industry leadership position.

The EPS estimates for 2015 and 2016 have been raised from $2.03 to $2.04 and from $2.36 to $2.39, respectively.