Analysts Weigh in on Facebook Stock as Quiet Period Ends
Investors who want more analyst opinion on the Facebook stock price now have a lot more reading to do.
Today (Wednesday) marked the end of a 40-day quiet period for dozens of analysts who work for the 33 underwriters of the Facebook (Nasdaq: FB) initial public offering. That means these analysts now have released their first opinions and outlooks for shares of the social networking behemoth.
In an effort not to artificially inflate the stock price of a "hot" IPO, major Wall Street firms are prohibited for the first 40 days following a stock's debut from issuing analyst reports on stocks they underwrite. Smaller banks that are part of such an offering usually follow suit.
The universal opinion prior to Wednesday's Facebook releases was that the majority of analysts would "like" FB shares, and predict a 20% rally or more could be expected over the next 12-month period.
That was mainly the case among its lead underwriters, although some were bearish, bringing the average price target down. Price targets for analysts who provided them Wednesday ranged from $25 to $45, with the average $37.71.
Editors Note: Estimates too high: To see what Facebook stock is really worth, click here...
But investors should consider the source before acting on the first analyst opinion they see. Some may be more interested in getting attention than guiding investors in the right direction.
"I think some people will swing for the fences to try to make a name for themselves by putting a big price target on," one underwriting analyst, prior to being at liberty to speak publicly, told CNBC.
That's why experts have warned investors to stay very cautious of trading the "ratings rally."
Now, let's get to the ratings...
Facebook Stock Round UpThe "Buy" Ratings:
Lead underwriter Morgan Stanley (NYSE: MS) started coverage with an "Overweight" rating and a 12-month price target of $38, the same as Facebook' s IPO price.
"We believe that Facebook is uniquely positioned to leverage its large and highly engaged user base to monetize the mobile Internet," Morgan Stanley said.
Morgan Stanley's comments addressed investor concerns that Facebook was slow to engage mobile use and was losing out on ad revenue in that arena.
Goldman Sachs (NYSE: GS), another one of Facebook's lead underwriters, initiated coverage of FB with a "Buy." It gave Facebook stock a 12-month price target of $42, some 27% above Tuesday's closing price and $4 better than Facebook's IPO price.
Goldman said that social platforms are helping to usher in the Internet's next era, and given Facebook's massive worldwide user base and established social platform, the company is positioned to lead this next phase of the Internet. The firm predicted 70% Facebook-user growth to 1.54 billion by the end of 2014.
Goldman was the most bullish along with JPMorgan Chase (NYSE: JPM), which gave Facebook stock an 18-month price target of $45.
"We believe Facebook's virtual ownership of the social graph, strong competitive moat, and unwavering focus on the user experience position the company to significantly improve monetization over time and to become an enduring, blue-chip company built for the long term," JPMorgan wrote.
Another Facebook cheerleader was Royal Bank of Canada's (NYSE: RY) RBC Capital Markets, which shares the view that Facebook is, and is poised to remain, the world's social networking leader. RBC gave Facebook stock an "Outperform" rating and a generous $40 price target.
Barclays started its coverage with a $35 price target and an "Equal weight" rating. Barclays noted that Facebook deserves a premium multiple as it is a market leader in both social media and broader online advertising. It also operates at margins that are markedly higher than the bulk of its competitors.
But, Barclays also pointed out noteworthy risks, including the biggest one on investors' minds.
"Facebook does not derive any meaningful revenue from its increasing mobile usage, and its ability to do so going forward is unproven," analysts wrote.
Bank of America Merrill Lynch shared that sentiment, initiating coverage with a neutral rating and $38 price target.
Citi also rated shares a neutral with a 12-month price target of $35. Citi wasn't too down on the stock though, and said there's a lot to like about Facebook. It said the fact that the site is on track to amass one billion monthly users and 600 million daily users make for "startlingly impressive metrics."
Perhaps the most bearish on Facebook stock was Money Morning's Keith Fitz-Gerald, who said on Fox Business' "Varney & Co." program Wednesday morning that he wouldn't touch Facebook stock with a 10-foot pole - or a 20-foot pole.
"They produce $1-something a year in revenue, there's no real basis to monetize it, they can't control the mobile space...I think "Hoodies R' Us,'" said Fitz-Gerald.
Following the releases Wednesday, Facebook stock was down 2.55% to $32.25.