Raymond James Cuts Alibaba Price Target On Currency Weakness, But Stock Remains Top Large-Cap Pick

The U.S. dollar has firmed up in recent months amid geopolitical tensions and a divergence in monetary policy between the U.S. and the rest of the major global central banks, both of which have ratcheted up the appeal of safe havens such as the dollar.

An unintended victim of the development is Alibaba Group Holding Ltd BABA, according to Raymond James.

The Analyst

Raymond James analyst Aaron Kessler maintained a Strong Buy rating on Alibaba stock and reiterated it as its top large-cap pick. The analyst lowered his price target for the shares from $300 to $280.

The Thesis

Alibaba shares have pulled back about 20 percent since mid-June, dragged by China macro concerns and the yuan's weakness, which depreciated about 8 percent versus the dollar since the company reported its March quarter results, Kessler said in a Wednesday note.

The analyst attributed the downward adjustment of the price target primarily to the currency. Raymond James made slight changes to  yuan-based estimates for 2019 and 2020. 

The firm's positive stance on Alibaba — despite the price target cut — is premised on a continued strong Chinese e-commerce market, upside potential to the take rate that hasn't been fully factored in and an attractive valuation, Kessler said.

Raymond James expects the company to report total revenue of 80 billion yuan, up 60 percent year-over-year, when it releases its first-quarter results before the market open Aug. 23. The firm estimates EBITA of 24.5 billion yuan against the consensus estimate of 26.3 billion yuan.

"We estimate total China commerce retail revenues of 56.5 billion (48 percent year-over-year vs. 56 percent in Q4) including 32-percent customer management growth and 40-percent commission growth."

The Price Target

Alibaba shares were rising 3.2 percent to $175.25 at the time of publication Thursday.

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Alibaba Executive Chairman Jack Ma speaks in Detroit in 2017. Photo by Dustin Blitchok.