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Facebook Inc. logo is reflected in the eyeglasses of a user in this arranged photo in San Francisco, Calif. (David Paul Morris/© 2011 Bloomberg Finance LP)
Facebook Inc. logo is reflected in the eyeglasses of a user in this arranged photo in San Francisco, Calif. (David Paul Morris/© 2011 Bloomberg Finance LP)

Eye on Equities

One 'buy', one 'sell': analysts' mixed views on Facebook Add to ...

Facebook Inc.’s initial public offering stumbled badly but a couple new analyst views today on the social networking king suggest there isn’t too much further downside risk from here.

Needham analyst Laura Martin initiated coverage of Facebook with a “buy” rating and a $40 (U.S.) price target. Referring to Facebook as “an option on the world,” she notes it now accounts for 14 per cent of time spent online globally.

That figure suggests Facebook next year could generate global revenue of $14-billion based on estimates that overall Internet revenue will reach $98-billion.

Ms. Martin also notes that operating margins at Facebook are growing rapidly, rising from 33.7 per cent in 2009 to 47.3 per cent in 2011. “This powerful economic engine suggests profit growth will be faster than revenue growth,” she said in a note, according to Forbes.com.

With 900 million users after eight years in existence, Facebook has far outpaced Google, which took 14 years to get to this level. As such, the stock warrants a bigger premium at the IPO than Google did, she argues.

S&P Capital IQ analyst Scott Kessler wasn’t as optimistic. He initiated coverage with a “sell” rating and a $30 price target - although that only implies a small loss based on the share price as of Wednesday afternoon.

“We acknowledge FB’s global brand and large user base, substantial growth, and considerable opportunities,” he was quoted by Forbes as saying in a research note. “However, we see notable risks related to monetization, expansion and corporate governance. Also, we think that in the Internet area generally and social-media segment more specifically, technologies and tastes are always changing and posing challenges to incumbent companies and offerings.”


Even under a worst-case scenario, SNC-Lavalin Group Inc. shares are undervalued, argued Accountability Research analyst Harriet Li. For instance, if SNC were to lose 32 per cent of its total revenue as a result of the corporate governance failure that has rattled the company, the company would still trade at only 8.4 times engineering and construction earnings versus peers at 11.3 times. “Current valuation is highly compelling once fundamentals are made the primary focus and unsupported claims are ignored,” the analyst said.

Upside: Accountability Research has a “buy” rating and $54 price target.


The risk/reward ratio of investing in Nike Inc. is “skewing to the downside,” warned Canaccord Genuity analyst Camilo Lyon. While the footwear maker continues to drive innovation in the athletic sector, he believes shares could come under pressure from decelerating sales over the next three to four quarters and the potential for excess inventory after the Euro Champs/Olympic sporting events.

Downside: Mr. Lyon rates Nike as a “hold” with a price target of $104 (U.S.).


Guestlogix Inc. , which helps airlines and other travel operators create onboard retail outlets, has been unable to generate any meaningful revenue growth in the last six quarters, said Versant Partners analyst Tom Liston, who downgraded the stock to “neutral.” He remained optimistic on the long-term outlook, however, providing that it can leverage its market position as the dominant onboard retailer with an extensive global footprint.

Downside: Mr. Liston cut his price target by 10 cents to 50 cents.


The U.S. Environmental Protection Agency has released a report on the Bristol Bay watershed area that holds Northern Dynasty Minerals Ltd.’s Pebble copper-gold project in Alaska. It indicates that there is potential for large-scale mining operations to have adverse impact on the salmon fishery. “We believe the EPA’s draft conclusions add to the negative perception regarding the project, and suggest that environmental opposition’s case against the Pebble project could gain traction,” commented Canaccord Genuity analyst Wendell Zerb.

Downside: Mr. Zerb downgraded the stock to “hold” from “speculative buy” and cut his price target to $7 from $11.45.


Primaris Retail REIT reported a strong first quarter, with occupancy rates remaining high, noted Canaccord Genuity analyst Shant Poladian. “We continue to like Primaris REIT’s near ‘pure-play’ enclosed mall focus given the lack of new supply, growing urban population density around these malls, strengthening tenant sales productivity, a growing list of US retailers coming to Canada, and management’s proven track record of execution,” he commented.

Upside: Mr. Poladian raised his price target to $25.75 from $24 and maintained a “buy” rating.

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