Thursday, 2 May 2024

1 Wall Street Analyst Thinks Meta Platforms Stock Is Going to $570. Is It a Buy?

by BD Banks

When analysts cut price targets on a stock, it doesn’t necessarily mean they changed their recommendation. One recent example was a post-earnings haircut for Meta Platforms (NASDAQ: META) shares made by a pundit tracking the tech giant’s stock.

Despite the cut, this prognosticator kept his buy recommendation intact, going somewhat counter to current market sentiment on the company. Let’s take a glimpse at that take to see how realistic it might be.

A $30 target reduction

The analyst in question was RBC Capital’s Brad Erickson, who reduced his Meta price target to $570 per share from the preceding $600. A $30 downward adjustment in a stock could be considered a major move, regardless Erickson stayed the course by maintaining his outperform (aka buy) rating on the company. The lowered target still implies a nearly 31% upside over the next 12 months.

Many market players were unhappy with Meta’s first-quarter results. The company tends to perform above expectations, and it did in terms of its trailing results — both revenue and generally accepted accounting principles (GAAP) net income beat the average analyst estimates. That wasn’t the case with second-quarter and full-year guidance, though, especially with its upward revision to capital and total expenditures for the latter period.

In his note on Meta detailing the price target cut, Erickson opined that the quarter “was solid in terms of top-line/ad demand trends — the issue is an accelerated, multi-year artificial intelligence (AI) investment cycle which exceeded investor expectations.”

A future powered by AI?

In his view, AI is a feast-or-famine technology for Meta. It’s foundational to that higher capex guidance, however, and a key reason for Erickson’s price target cut.

Nevertheless, Erickson clearly feels Meta can be an AI winner, and I’d agree. It could enhance so many corners of Meta’s business while opening new sources of revenue. What’s more, management isn’t shy to shift resources to more high-potential areas when necessary — witness how it’s no longer shouting about the metaverse like it once did. I think this stock remains an excellent bet on the future of social media.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Eric Volkman has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.