Has The Recent Underperformance In FANG Been A Buying Opportunity?
Is FANG just a fad, or is there any inherent value in the stocks making up the acronym? Canaccord Genuity looked at these stocks in a note issued Sunday following two weeks of investor meetings. The firm concluded that the recent underperformance of the internet group was more due to outperformance of other sectors such as financials and energy and therefore could be treated as a major buying opportunity.
Analyst Michael Graham offered his views on the individual stocks.
Facebook: Valuation Reasonable
Graham noted that most find the valuation of Facebook Inc (NASDAQ: FB) reasonable. The analyst is of the view that core Facebook and Instagram can carry fundamentals through 2017. The widespread belief is that caution around adload can be compensated with pricing and Instagram, the analyst noted.
While also noting that initial guidance for expense growth has caused a selloff in the stock in each of the past three years, the analyst said focus on GAAP EPS is a headwind for the stock.
Amazon: Prime Flywheel And India Hurt Margins
Canaccord believes Amazon.com, Inc. (NASDAQ: AMZN)'s Prime Flywheel and India have served to keep margins low for now, with only half of investors concerned about growth. Tough comps along with multiple price cuts in November at AWS are large concerns, according to the firm. The firm feels the first-quarter guidance will likely be impacted.
Netflix Valuation Untenable
While some view the valuation of Netflix, Inc. (NASDAQ: NFLX) untenable, the firm said the stock could see significant downside in the eventuality of any negative news. The firm is bullish on the stock long term, but believes the first-quarter guidance could be overly conservative, given the tough comps. The firm is of the view that the management's strategy centers on scaling original content to create a competitive moat, although most investors have not bought into the idea.
Google: Bullish On Short-term Fundamentals
Canaccord is bullish on Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s short-term fundamentals, banking on mobile and YouTube. The firm views the fact that the company does not issue guidance, unlike other FANG stocks, as favorable. While highlighting gross margin degradation as a major concern, the firm said website growth can compensate.
Others In the Internet Space
- GrubHub Inc (NYSE: GRUB): The stock is seen screening well on profitability, with 2017 estimates viewed as conservative.
- Pandora Media Inc (NYSE: P): Positive impressions revealed by recent products but short-term ad business is a concern; potential upside to subscriber conversion to Pandora Premium next year seen to compensate.
- Wayfair Inc (NYSE: W): Mid-quarter metrics point to modest upside to fourth-quarter guidance; breaking international vs. domestic profitability a key positive.
- Zillow Group, Inc. (NASDAQ: ZG): Valuation and stock-based compensation headwinds; a conservative 2017 guidance could elicit stock reaction; potential for the new self-serve ad buying platform to contribute to pricing upside in the Q2 and Q3 not discounted.
Ratings And Price Targets
- Alphabet's Google: Buy, with $925 price target.
- Amazon: Buy, with $875 price target.
- Facebook: Buy, with $150 price target.
- GrubHub: Buy, with $48 price target.
- Pandora: Buy, with $18 price target.
- Wayfair: Buy, with $45 price target.
- Zillow Group: Buy, with $42 price target.
Latest Ratings for AMZN
|Apr 2017||Goldman Sachs||Maintains||Buy|
|Apr 2017||Wolfe Research||Downgrades||Outperform||Peer Perform|
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