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By: Brendan Gilmartin

Baidu, Inc. (NASDAQ:BIDU) is scheduled to report 4Q 2012 earnings after the closing bell on Monday, February 4. The actual results are expected to come through between 4:00 and 4:30 p.m. EST with a conference call slated to follow at 8:00 p.m. Baidu is China's largest search engine and offers an array of additional services, making it among the most trafficked local sites.

Outliers & Strategy

Key measures:

  • Non-GAAP EPS (4Q 2012): The current consensus is $1.29, the midpoint of analyst forecasts ($1.21 - $1.36). (Source: Yahoo! Finance)
  • Revenues (4Q 2012): Baidu previously said it sees 4Q 2012 revenue in the range of $979.3 mln to $1.01 bln. The consensus is at $1.01 bln.
  • Revenues Guidance (1Q 2013): The current consensus is for revenue to grow 42.8% to $967.09 mln.


Baidu shares are currently trading at around 18.4x forward earnings, resulting in a FWD PEG ratio of just 0.70.

Keep an eye on the following as potential sympathy plays: Sohu.com (NASDAQ:SOHU), Sina (NASDAQ:SINA), and Qihoo 360 Technology (NYSE:QIHU).

Recent News

  • 01/28: According to a post on Benzinga.com, Citigroup reiterated a Sell rating and lowered the price target on Baidu to $90. The firm noted that Baidu is in a transition period toward mobile and cloud-computing.
  • 01/10: J.P. Morgan Chase reiterated an Overweight rating and a $170 price target on Baidu, according to a post on StreetInsider.com. The firm noted that much of the recent negative sentiment surrounding Baidu appears priced into the shares and sees several potential catalysts, including a solid 4Q earnings release, a pickup in ad spending, favorable economic conditions, and improved monetization in mobile.
  • 01/07: Barclay's downgraded Baidu form Overweight to Equal-Weight and lowered the price target from $137 to $113, according to a report on StreetInsider.com. The firm cited earnings risk, the competitive threat from Qihoo 360 Technology, and an unclear strategy in mobile as factors for the downgrade.
  • 01/02: Piper Jaffray reiterated an Overweight rating on Baidu, according to a report on Benzinga.com. The firm attributed the recent pullback to a weakening in the Chinese economy, competition from Qihoo, and regulatory concerns. However, the firm remains upbeat on Baidu, citing a positive growth profile and valuation.

Technical Review

Since bottoming out near $90 back in mid-December, Baidu shares are up about 20% ahead of 4Q earnings. In recent weeks, however, the shares have stabilized near $110, with shorter candlesticks, suggesting the shares are poised or a breakout in either direction. Should earnings surprise to the upside, the first point of resistance is $115, with further upside toward last summer's high near $130. Conversely, support is at $105, followed by the 50-Day SMA near $100, and $95.00. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

Baidu shares are off about 15% over the past year, due to concerns over slower growth in China, increased competition from the likes of Qihoo, an uncertain mobile strategy, and valuation. But with the shares trading at just 18x forward earnings and a Forward PEG ratio of just 0.7, much of those concerns appear priced in at these levels. Recent signs of a pickup in the Chinese economy and the threat from Qihoo factored into the share price, Baidu has plenty of additional upside if earnings and revenue guidance come in at the high end of Street expectations.

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Source: Baidu Shares Advance Ahead Of 4Q Earnings Despite Concerns Over Growth And Competition