Citi Upgrades Mercadolibre As Shares Soar Following Q2 Earnings

Mercadolibre Inc MELI shares are soaring after reporting a second-quarter earnings beat.

MercadoLibre reported quarterly earnings of 31 cents per share, which beat the analyst consensus estimate of 25 cents. The company reported quarterly sales of $545.242 million, which beat the analyst consensus estimate of $504.16 million.

The Analyst

Citi analyst Tobias Stingelin upgraded Mercadolibre from Neutral to Buy and raised his price target from $609 to $729.

The Thesis

Stingelin said Mercadolibre's results were solid despite missing his EBITDA estimates by 67%, but ensured it only represents $10 million and that growth remains stellar.

The analyst said top-line growth of 63% year-over-year indicated the company’s strategy to acquire customers and increase frequency of usage, continues to yield results.

Stingelin says solid growth has come at a cost, which was evident in the 49% year-over-year increase in sales and marketing expenses, as the company continues to invest in fintech services and in marketing.

“Despite the EBITDA miss, reported earnings exceeded our estimates on the back of an income tax credit related to tax loss carry forwards,” Stingelin wrote in a note.

Citi is increasing its revenue growth estimates for 2019 and 2020, but reducing its margin estimates to reflect higher investments to drive growth. The firm cut its earnings estimates by 5% in 2019 and 12% in 2020.

Price Action

Mercadolibre shares traded higher by 11.7% at $685.80 Thursday afternoon.

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