FB Stock: Facebook Inc. (FB) Stock Is A Buy Ahead Of Q3 Earnings

  • Facebook Q3 2016 earnings are scheduled to be announced on November 2 after markets close.
  • Wall Street is weighing into the stock with bullish commentary ahead of the earnings report.
  • Is Facebook Stock a buy heading into the Q3 earnings announcement?
Why Facebook Inc. (FB) Stock A Buy Ahead Of Q3 2016 Earnings
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Facebook Inc. (NSDQ:FB) is scheduled to report its Q3 2016 earnings on November 2, after the market close. Wall street expects the company to report an EPS (Earnings Per Share) of 97 cents on revenue of $6.92B, implying a 70% YoY growth in earnings and 50% expansion in the top line. Facebook has beaten analyst estimates in each of the last 4 quarters, delivering strong growth in revenue as well as earnings, reflecting in the rise in Facebook stock price, which is up 24% in the year-to-date, closing the last trading session at $132 per share. Will the upcoming earnings report add fuel to accelerate the further rise of Facebook stock?

Facebook Stock Is Riding A Bullish Wave

A number of Wall Street analysts have recently hiked their targets for Facebook stock. Credit Suisse analyst Stephen Ju had, last week, upped his target for FB stock to $170 from $154. In a more recent investor note, Goldman Sachs analyst Heather Bellini reiterated a 'Buy' rating on the stock with a price target of $162. The result has been a consistent uptick in the analyst consensus price target, which is currently at $156.76, up from $144.3 three months ago. The bullish sentiment around Facebook stock is also reflected in investor sentiment. As per the popular stock-specific social platform, Stocktwits, 76% percent of investors are bullish on Facebook stock. (See also: Should Warren Buffett buy Facebook Inc. Stock?)

Facebook stock investor Sentiment

Facebook Q3 2016 Analyst Estimates

Wall street expects Facebook to report EPS of 98 cents on top line of $6.92B, implying a 72% YoY growth in earnings and 54% revenue growth compared to Q3 2015. The analyst consensus has risen significantly, up from expectations for 87 cents in EPS on $6.6B revenue at the end of July. That's a 12.6% rise in EPS estimates and a 5% rise in the revenue estimates in just 3 months. The earnings whisper number anticipates Facebook to report an EPS of $1.03, good for a 5 cent earnings surprise, implying an 81% YoY EPS growth. As covered in our recent post, strong growth in advertiser spends and the expansion of the Facebook advertiser network make an earnings beat highly probable.

Facebook Earnings History and Post-earnings Stock Performance

Facebook has a very strong track record of beating analyst estimates, having come out on top in 15 out of the 17 earnings reports the company has released since its IPO. The company has delivered an earnings surprise in each of the last 4 quarters, with an average earnings surprise of 19.4%. Facebook stock has traded strongly following earnings announcements, with the stock rising by an average 7.17% in the one trading session following the last 4 earnings reports.  Hence, a beat/miss on the Q3 2016 numbers on November 2 could well decide the post-earnings movement of Facebook stock.

Facebook earnings surprise history

Conclusion

Wall Street is increasingly bullish on Facebook stock, which has been reflected in the rising analyst consensus price targets. The stock is also enjoying a positive sentiment from investors/traders. Strong investor sentiment, Facebook's history of huge earnings beats and recent reports of growing advertiser spends position Facebook for a solid revenue/earnings beat. Hence, investors looking to benefit from a post-earnings rally in the Facebook stock price should buy into the stock ahead of the Q3 earnings release. (Also see: Amigobulls Latest Top Technology Stock Picks.)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and FB stock

Chad59
bullish
FB entered the top 10 public companies by market capitalization (share value)in the last quarter of 2015 at number 10. Q1 in 2016 @ no. 7; Q2 @ 8; Q3 @ 5. To take 4th spot in Q4 FB needs to see shares at 140 - placing its value at 402b and nudging out Amazon, (assuming Amazon stays static - not likely). Either way, in the race to be the first US Trillion dollar company FB has the fastest controlled trajectory and needs to grow it's share value to US348 dollars a share. You think this impossible? Consider this, FB users already represent 2/3 of every person on the net - but only a third of the world is actually connected... that leaves about 5 billion to be connected. if 2/3 of those join then FB user base grows from over 1b to about 4b... there's your trillion dollar company.
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virendra
bullish
Based of FY 2016 estimates, it isn't hard to see FB at $140 per share. Analysts expect the company to report EPS of $4.1, implying a 29X FY2016 EPS multiple. Given the current growth rate of over 35, a PE of 35 would be a better way to evaluate FB (PEG of 1).

35*4.1=$143.5, which should put FB at no 3 on the list of biggest companies by market cap. I think given the history of earnings surprises, a $150 PT in less than a year is highly probable and realistic.
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