Bulls chase 'leaner' Facebook owner Meta shares higher

Analysts also have pushed up Meta’s 2023 earnings per share estimate by 15% over the past three months. 

A leaner Meta Platforms is impressing Wall Street, with analysts turning more bullish as cost cuts coupled with stabilising advertising trends make the Facebook owner’s stock look more durable in a looming economic slowdown.

The shares have surged 140% from a seven-year low in November as Meta started cutting thousands of jobs, including at its major facility in Ireland,  in light of falling sales. The company announced further layoffs last month and pledged to be more efficient, adding kindling to the rally. 

More than two dozen brokers have increased their price targets on the stock since the second round of job cuts was announced. Analysts also have pushed up Meta’s 2023 earnings per share estimate by 15% over the past three months. 

Morgan Stanley’s Brian Nowak in March restored his buy-equivalent rating after sitting on the sidelines for less than five months.

While the ad business has slowed, it’s at least stabilised, bulls say. And in another positive sign for earnings, changes in Apple's privacy policy that make it harder to target iPhone users with ads have now been in place long enough that they’re no longer affecting Meta’s year-over-year growth rate. 

“The catalyst for Meta’s recent rally is likely traced to both extensive cost-cutting measures and adjusting to the negative effects of Apple’s privacy changes which significantly hurt ad revenue,” said Mike Akins, founding partner at ETF Action.

“To a large extent, Meta’s recent surge is simply recovering from being oversold,” he said. 

Because analyst earnings estimates are rising along with the stock price, Meta’s shares are still much cheaper than its big tech peers and the Nasdaq 100 Index. Trading at 17 times forward earnings, Meta is below its historical 10-year average of 26 times, according to Bloomberg data. 

In contrast, Amazon trades at 36 times, Microsoft’s price-earnings ratio is 28, Apple is at 26 and the tech-heavy gauge sells for 24 times.

Morgan Stanley’s Mr Nowak called Meta the most durable megacap if consumer spending weakens, since the company’s cost reductions have been bolder than at peers such as Alphabet Inc.

Concern about inflation and a potential recession have squeezed ad budgets at businesses, crimping the primary revenue stream for companies like Meta, Google parent Alphabet and Snap. But some analysts, such as Guggenheim’s Michael Morris, are also seeing more stability in overall advertising demand.

Bloomberg