Platforms stock is attractive—one of the best plays in the internet sector— because the risk of a recession is already reflected in its price, according to BofA Global Research.
(ticker: META) CEO Mark Zuckerberg told employees the company faces one of the “worst downturns that we’ve seen in recent history.” In response, the tech giant plans to scale back hiring, reduce spending, and push out underperforming workers, according to numerous media reports.
On Monday, analyst Justin Post said Meta management’s cautious commentary is positive news for shareholders. He reaffirmed his Buy rating for Meta stock and reiterated his target of $233 for the price, citing the company’s ability to offset the effects of a slowing economy with spending cuts.
Meta is “a top recession stock in [the] internet group,” he wrote. “We believe relative positives for Meta include lower expectations … and more expense flexibility than peers, plus healthy margins that should minimize cash flow concerns.”
Meta stock was up 2.6% to $164.17 eary Tuesday afternoon, while the
was down 1.5%. The stock has fallen by a bit more than 50% so far this as investors have grown concerned about slowing growth at the social media company, as well as increasing competition from the short-video app TikTok for both consumers’ attention and ad revenue.
Despite those challenges, the analyst said, earnings could grow this year even if the economy enters a recession because Meta can cut spending for long-term investments and reduce employees’ bonuses. He also noted that engagement is rising for Reels, Meta’s own short-video format, giving the company an opportunity to cash in.
Ultimately, according to BofA’s analysis, Meta shares are valued too cheaply for a company with its financial resources. The stock currently trades at 12 times estimated 2023 earnings per share, compared to the S&P 500’s 14.5 times, according to FactSet.
Meta shares are at a “discount to the S&P, and [has] significant cash on hand to take advantage of stock dislocations with buybacks,” Post wrote.
Write to Tae Kim at [email protected]