3 Reasons The Street Faded Credit Suisse's Bullish Call On eBay

Credit Suisse Upbeat On eBay

Credit Suisse in a note released last Monday upgraded shares of eBay to Outperform from Neutral, while also lifting the price target to $44 from $34. Analysts Paul Bieber and Vikram Kesavabhotla see the company as an Internet value story with several paths to value creation.

While terming the company as a turnaround story, the analysts said marketplace growth is stable and has the potential to accelerate in the second half of 2017 and 2018, driven by platform changes and product innovation.

Out of the 37 analysts covering the stock, 20 analysts have Hold ratings on eBay and 10 have Buy ratings, according to Yahoo's database. The average price target is $35.63.

Why The Pre-Market Rally Triggered By The Upgrade Couldn't Be Sustained

• With the early move suggesting that the stock could rally in reaction to the upgrade, some of the outstanding orders would not have been executed amid expectations for a higher price for liquidation.
• EBay ran into whole-number resistance theory, thus stifling its move above the $36 level. Day traders treat every $1 whole number increment or decrement (for stocks valued at over $10) as probable support/resistance levels, as they think stocks are fairly valued at these levels. These whole numbers are considered as levels where institutional and retail orders converge. The move to $36 from $35 level could have triggered some selling by traders, who would have deemed the whole number move to $36 as offering resistance to the stock.
• After a broad consolidation phase seen from mid-February to mid-April, the stock experienced a pullback around its first quarter earnings date only to begin a recovery since late-April. From a post-earnings low of $32.05, the stock has gained about $3. Since May 17, when it was priced at $33.58, the stock has run up $2 in about 11 sessions. The stock had hit an all-time high of $35.32 last Friday and closed at fresh record of $35.55 on Monday, although off its pre-market highs of $36.4.

Although eBay could not capitalize much on the upgrade, given that it has run up too much, too fast in recent sessions, Credit Suisse's price target of $44 suggests roughly 24-percent upside from current levels.