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There is no denying that Facebook (NASDAQ:FB) was a great trade in June. Over the past few weeks, shares of the social-media giant managed to surge nearly 30 percent off lows made in early June. However, as a longer-term investment, the recent flood of analyst ratings have investors and traders thinking twice.
Wednesday marked the end of the “quiet period,” or 40 calendar days following the IPO, during which analysts from the several investment firms that were involved with the underwriting process were prohibited from publishing recommendations. It was widely expected that the analyst coverage would be bullish for Facebook. Instead, the coverage was lackluster at best.
The general consensus was that Facebook may need a year or more before regaining its IPO price of $38. Goldman Sachs (NYSE:GS) initiated coverage with a Buy rating and a 12-month price target of $38, but Bank of America (NYSE:BAC) and Citigroup (NYSE:C) rated the stock Neutral. Barclays (NYSE:BCS) began its coverage with an Equalweight rating and a $35 price target, noting that while the social network had long-term opportunity in online advertising, there were also significant risks. “Facebook does not derive any meaningful revenue from its increasing mobile usage, and its ability to do so going forward is unproven,” the bank said.
Overall, analysts from eight banks rated Facebook as a Buy, while another nine banks said it was a Hold. BMO Capital Markets (NYSE:BMO), one of the largest diversified financial services providers in North America, rated the company as a Sell. The mixed reaction is rather unusual for an IPO, especially one as popular as Facebook. The WSJ explains, “According to data from capital markets research and advisory firm Ipreo Inc., a study found that of about 700 U.S.-listed company IPOs from 2006 to 2011, 71 percent received a Buy rating on average when the 40-day quiet period concluded, while 28 percent had a Hold rating on average. With more Neutral than buy ratings, plus the Sell rating, Facebook’s average rating is a Hold.”
Although, the average price target among analysts is $37.80 for Facebook, representing a 21.5 percent premium from Friday’s closing price. The picture is much worse from a glass half-empty perspective. If Facebook had merely traded flat after going public at $38, the recent slew of Buy and Neutral ratings would really represent Sell ratings, as $38 is already equal to or above many of the price targets. However, from a contrarian perspective, Facebook may be a compelling stock.
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