Over the mid term, Alibaba’s (BABA) share price has had a habit of moving in step with earnings revisions but during the past 3 months, this relationship has weakened.
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During the period, Alibaba’s forecast for adj EPS in FY2024 has been cut by 4%, yet the share price has dropped by 34%.
Moving forward, how can this be corrected? J.P. Morgan’s Alex Yao has an idea. The analyst believes “sentiment-driven fund flow is the current key share price driver and revenue recovery is the key determinant of market sentiment.”
That is a bit of problem, then. Because Yao expects weak China consumption in the September quarter (F2Q23) to impact the revenue outlook.
Since late August, Covid has once again been a disruptive force in a host of cities across China, and as such, Yao expects “limited improvement” in Alibaba’s core-core CMR (customer-management revenue) compared to the June quarter.
The analyst sees the September quarter’s CMR falling by 4% from the same period last year, hardly any better than the June quarter’s 5% drop. On account of “low visibility of consumer sentiment improvement” or any relaxion of the Covid policies, the decline will continue in the December quarter, albeit at a slower pace (Yao expects a 2% year-over-year decline vs. anticipation of a positive turn previously).
In contrast, given Alibaba’s firm commitment to cost-cutting and efficiency-improving measures, Yao sees “potential upside to consensus bottom-line projections.”
However, that might not have enough of a positive effect right now. “Alibaba’s weakening revenue outlook in the near term could continue to weigh on the share price despite an unchanged, or even potentially better, profit outlook,” the analyst said, before summing up, “Nonetheless, we believe Alibaba’s share price is attractive on a 12-month view on 1) profit growth recovery to 20%+ in FY2024, 2) current consensus FY2024 PE of only 9x.”
To this end, Yao rates BABA shares an Overweight (i.e., Buy) along with a $135 price target. This figure leaves room for 12-month share appreciation of ~69%. Yao’s rating stays an Overweight (i.e., Buy). (To watch Yao’s track record, click here)
Overall, Wall Street takes a bullish stance on Alibaba shares. 17 Buys and 1 Sell issued over the previous three months, making the stock a Strong Buy. Meanwhile, the $149.06 average price target suggests ~86% upside from current levels. (See Alibaba stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
