© Reuters Despite Cutting Price Target on Alibaba (BABA) Shares Analyst Says Current Valuation Attractive
Citi analyst Alicia Yap lowered the price target on Alibaba (NYSE:) to $177.00 per share from $200.00 to reflect lower multiply and margin assumptions for the company’s core e-commerce business.
Yap notes that prolonged city lockdowns in China will hurt the overall economic activity, which will impact Alibaba’s profit growth for FY4Q22.
We believe the COVID impact will drag on into FY1Q23 and possibly delay CY2H22 recovery trend. Given cost optimization efforts across internet peers, we believe Alibaba has also slowed investment subsidies. In fact, BABA mgmt noted last quarter that it expects investment losses in Taobao Deals and Taocaicai to narrow gradually in the coming quarters. Nevertheless, with continued merchant support measures, revs mix shift towards lower margins or loss-making business, overall EBITA growth will remain under pressure, Yap said in a client note.
Regardless, the analyst says Alibaba shares look attractive at current levels given US$15.8bn outstanding in REPO, strong cash flow generation and trading near historical trough.
The analyst updated revs/non-GAAP profit estimates for FY4Q22, FY2022- FY2024 by -0.1%/-21.9%, -0.0%/-3.5%, -0.4%/-22.7% and -1.4%/-25.8%, respectively, to reflect lockdowns in March.
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