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Facebook stock analysts peg its worth at no more than $38 a share

June 27, 2012|Bloomberg News

Facebook Inc. analysts including those at lead underwriter Morgan Stanley say the social-network operator is worth no more than its debut price of $38.

At least 17 securities firms began coverage of the company Wednesday, bringing the average analyst share-price estimate to $37.95, data compiled by Bloomberg show. Morgan Stanley gave Facebook the equivalent of a buy rating, as did JPMorgan Chase & Co., Goldman Sachs Group Inc. and five other firms. There were eight holds and one sell, the data show.

The stock opened at $42 on May 18, hours after underwriters sold shares for $38 each from investors and insiders including Chairman and Chief Executive Mark Zuckerberg. They finished the day at $38.23, but tumbled in the following weeks to as low as $25.87. On Wednesday, the shares fell 87 cents to $32.23.

"Facebook is uniquely positioned to leverage its large and highly engaged user base to monetize the mobile Internet," said Scott Devitt, an analyst at Morgan Stanley, in a research report initiating coverage Wednesday. He set a price estimate of $38.

Firms from Bank of America Corp. to Credit Suisse Group AG and Citigroup Inc. gave Menlo Park, Calif.-based Facebook the equivalent of a hold rating.

Citigroup's Mark Mahaney, in a report titled "Easy to 'Like,' Hard to Love," said Facebook's "significant" long-term prospects are offset by the stock's valuation and slowing growth in users. He said the company trades for 50 times his estimate of 2013 earnings. The average analyst estimate for profit excluding some items next year is 64 cents, according to data compiled by Bloomberg.

"Super-high multiples and decelerating growth don't mix well," Mahaney said.

Daniel Salmon, an analyst at BMO Capital Markets Corp. in New York, initiated coverage with a price target of $25 and rated Facebook underperform, an equivalent to sell. Facebook's user growth will slow to 16% in 2014 from 22% next year, he said.

"With user growth decelerating, pricing power will be required to support the valuation, and we believe this will be a challenge in light of industry-wide declines," Salmon said.

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