Alibaba Group Upgraded By CFRA Research To Buy From Hold

Alibaba Group Holding Ltd’s BABA rating was recently upgraded by investment firm CFRA Research to Buy from Hold. In addition, analysts gave a target price of $102.

Following the news, Alibaba’s share price increased 0.03% in after-hours trading, reaching a high of $88.20 and eventually closing at $87.33.

On a year-to-date basis, shares of Alibaba generated a return of 7.51% compared with the Zacks Electronic Commerce industry’s gain of 7.31%.

Why the Upgrade?

Analysts at CFRA Research believe that President-elect Donald Trump’s new policies have negatively impacted the company’s share price. However, they remain optimistic about Alibaba’s increasing market dominance and growth prospects in the Chinese market.

Trump proposed policies to upend global trade. He said that China is “killing us” on trade policy. His intention to impose a 45% tax on Chinese imports is the biggest threat to the e-commerce operator Alibaba. Over the last three months, Alibaba’s stock price was down more than 17.45% against the 4.4% gain for the S&P 500.

Despite these economic concerns, the analysts also feel that China’s strong secular shifts will prove beneficial for Alibaba. E-Commerce Index reveals that the developing markets hold a greater potential for online growth, and China is now leading the race in terms of maximizing the potential of the Internet compared with the West. Therefore, Alibaba that dominates the world’s largest e-Commerce market will always have an edge over its competitors.

Also, the analysts are of the opinion that Alibaba is progressing well on its mobile shift and continues to dominate the Internet e-commerce market in China.

Last Quarter Update

In the last reported second-quarter fiscal 2017 (ended Sep 30, 2016), Alibaba delivered decent results with earnings outperforming our estimates. The solid growth in its core e-commerce business as well as growing cloud computing services led to better-than-expected results. Alibaba’s revenues were RMB34.29 billion (US$5.1 billion), up 6.6% sequentially and 54.7% year over year.

In addition, Mobile MAUs grew 30% year over year to 450 million as the adoption of mobile devices is the primary mode of accessing Alibaba’s platforms.

Conclusion

The Chinese e-Commerce goliath caters mainly to its native market. The company, which operates as a platform for third-party sellers, neither sells goods directly to merchants nor holds inventory.

The company’s dominance in the mobile commerce market, its continued efforts to develop new products, international growth opportunities and strong financial position are all positives. Alibaba is also expanding its presence into other fields, notably teaming up with SAIC Motor to explore the connected car space. Furthermore, it is also investing in e-sports through its new partnership with the International e-Sports Federation, and plans to build a number of stadiums in China for e-Sports events.

However, macro headwinds, continued investments and increasing competition from Tencent Holdings and Baidu remain the overhangs.

ALIBABA GROUP Price and Consensus

 

ALIBABA GROUP Price and Consensus | ALIBABA GROUP Quote

Some Well-placed Stocks in the Same Space

Currently, Alibaba has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Stamps.com Inc. STMP and Cognex Corporation CGNX sporting a Zacks Rank #1 (Strong Buy) and Ctrip.com International CTRP with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Stamps.com delivered a positive earnings surprise of 66.72% in the trailing four quarters.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Ctrip.com International Ltd. delivered a positive earnings surprise of 50.32% in the trailing four quarters.

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