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Piper Jaffray analyst Safa Rashtchy upgraded Baidu (BIDU) to "outperform" last week. The following is a summary of his note to clients:

It’s Time To Own Baidu. Many institutional investors have avoided Baidu stock in the past, based on well-placed concerns of unsustainable valuation. We believe the significant strengthening of Baidu’s position in China’s search market and the company’s continued outperformance now support the current valuation, which has moderated significantly since the high days post-company IPO. In fact, we believe the stock is worth notably more than the current levels, and thus we have raised our rating to Outperform. We note that our revenue estimates for 2006 have increased by 57% since we published our first model on Baidu, due to Baidu’s much better performance. Similarly, our 2007 estimates have gone up by 122% in the same period, making the price target valuation multiple go from a 52x (when we initiated coverage) ’07 PE multiple to the current 55x. Equally important, in our view, is that Baidu has cracked the code on China’s search, which we believe is different from the U.S. search market, allowing the company to gain a dominant and largely defensible advantage. Google’s competitive threat, which we feared for much of last year, has failed to appear, and we believe Google may face some structural challenges in its attempt to overtake Baidu in China. Advertiser adoption of paid search is continuing with Baidu now having more than 75,000 advertisers, at a rate faster than what we observed during the early search days in the United States. Finally, user acceptance of Baidu is increasing and, in a manner similar to Google’s share gain the United States, Baidu is building on its strength and gaining more market share. In short, we believe the picture is much more stable for Baidu than it was a year ago, while the estimates are now significantly higher and support a higher valuation. We urge investors to build a solid position in Baidu as China’s dominate search provider with a large market opportunity.

Source: Analyst Upgrades Baidu; Google Threat Has Failed to Appear (BIDU)