Baidu Extends Its Post-Earnings Rally - But What's It Worth?

Baidu (BIDU) shares today have extended a remarkable rally after the company late yesterday reported stronger-than-expected March quarter results as well as second quarter guidance that exceeded Street expectations.

Today, Baidu shares have gained $19, or 5.6%, to $361. The stock is now up $153.10, or nearly 74%, since closing March 20 at $207.90. Even with that rally, the stock is off almost 12% since peaking at just over $400 in late December. You want a high beta stock, this is it.

Baidu is widely perceived as the Google (GOOG) of China, with a small footprint but nearly unlimited potential. But you are paying for that potential, big time. The stock now has a market cap of $12.4 billion, or well north of 28x the 2008 consensus revenue estimate of $431 million. (Google, by contrast, trades for 10.6x estimated 2008 revs.)

There is considerable disagreement with what to do with the stock; this morning we had both an upgrade and a downgrade of the shares; a number of analysts upped their targets on the upside surprise yesterday. Here’s a quick rundown on some of the commentary:

• George Chu, Deutsche Bank: He cut his rating on the stock today to Sell, from Neutral, citing margin concerns; he notes that while revenue in the quarter beat his forecast by 7%, EPS only beat by 3%. He says rising costs of acquiring traffic could pressure margins.
• Colin Gillis, Canaccord Adams: Gillis repeated his Sell rating and $265 target on the stock. He says the valuation is expensive; that Street expectations for the second half may be too high; that the company could be vulnerable to litigation about MP3 downloads; that there is uncertainty that it can monetize its foray into Japan; and that a boost in spending from the Olympics “may wane faster than expected.”
• Jason Brueschke, Citigroup: He raised his rating on the stock to Buy from Hold, and upped his target to $415 from $350. He says the company now has the seasonally weakest quarter behind it.
• Steve Weinstein, Pacific Crest: He repeated his Outperform rating and raised his target price to $405 from $350, based on a valuation of 60x 2009 EPS of $6.75. “We consider this reasonable given Baidu’s growth, market dominance and potential for upside.”
• Gene Munster, Piper Jaffray: “The Street can debate the beat in March, but the positive guidance is undeniable,” he writes. Munster maintains his Buy rating and $430 price target.

Comments

[Ajoy]

Collected the take of many analysts on
baidu-news.blogspot.co...

[User 169146]

WOZ

[Boulder Biker]

This is a no brainer.

Anyone who bought under 250...TAKE PROFITS NOW!

250-300: Sell half, keep half.

Over 300: Hang on to see if you hit 400.

[David Boettger]

I'm sorry, but the analysts are just morons when it comes to this stock. I've been following Citibank/Jason Brueschke on this share for a long time. Here's how it works: The stock rises, so Jason raises his target price. The stock falls, so Jason lowers his target price. If you are trading based on analyst "intelligence&quo... you're a fool.