MKM: Alibaba Has The Best Fundamentals Of Any Mega-Cap Stock

MKM Partners raised its price target for Alibaba Group Holding Ltd (NYSE: BABA) by $43 Wednesday, predicting the company’s commerce will grow by 50 percent this year.

Rob Sanderson, managing director at MKM, maintained a Buy on the stock.

The price target increase is driven by “50 percent organic growth in the segment, strong secular trends, dominant market position and [a] 60-percent margin while funding significant investments,” Sanderson said in a note.

Alibaba is MKM’s top pick in Internet mega-caps and has the best fundamentals in the group, the analyst said.

The Chinese e-commerce giant reported a first-quarter adjusted EPS of $1.17 against a 93-cent estimate on Aug. 17 and sales of $7.403 billion versus a $7.13 billion estimate.

The company reported 466 million annual active consumers and 529 million mobile monthly active users, up 22 million year-over-year.

Why Alibaba Is The Best Mega-Cap Internet Name

Alibaba’s fundamentals are the best in sector, according to MKM. The research firm named six of them:

• End markets with higher growth and evident acceleration.
• Monetization improvement driven by traffic growth and personalization.
• The opportunity to build ad load at management’s discretion to drive continued top-line expansion.
• Cloud is in an earlier stage in China, and the dominance of Alibaba’s subsidiary Alicloud “may be less contested than” Amazon.com, Inc. (NASDAQ: AMZN)’s AWS is in the west, Sanderson said. Alicloud has crossed the 1-million mark in paying customers and has more market share than its next seven competitors combined, according to MKM.
• E-commerce adoption in southeast Asia is “accelerating and just beginning.”
• Alibaba’s commerce segment margin is 60 percent, even as major investments —such as in rural China, a $1-billion stake increase in Lazada and the expansion of Tmall — are absorbed.

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Image Credit: Rico Shen, via Wikimedia Commons