Alibaba Group Holding Ltd (NYSE: BABA) investors are hopeful the stock can get back on track Thursday when the company reports fiscal 2019 second-quarter earnings. Analysts say BABA stock has taken a hit from the U.S. trade war with China, but the company is still well-positioned as a long-term growth leader.
Analysts expect Alibaba to report first-quarter earnings per share of $1.21, up from $1.15 in the same quarter a year ago. Analysts are also calling for first-quarter revenue of $11.76 billion, up 61.4 percent.
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Investors will also be watching cloud computing revenue and margins closely. Last quarter, high-margin cloud computing revenue grew 103 percent to $641.5 million. However, rising costs from heavy investments in Alibaba’s New Retail initiative, including food delivery and brick-and-mortar stores, resulted in operating margins declining from 25 percent to 15 percent.
Perhaps most importantly, investors will be looking for any commentary from the company on the impact of the ongoing U.S. trade war with China. Last week, China reported that July retail sales growth was just 8.8 percent, short of the 9.1 percent growth analysts had expected.
Fears over the trade war and rising costs have sent BABA stock tumbling 9.5 percent in the past three month, but CFRA analyst Scott Kessler says the trade war risk is fully priced into the stock at this point.
“Even though we expect to see indications of pressures related to U.S. tariffs and the Chinese economy and currency, we think the [American depositary receipts] largely reflect those risks,” Kessler says.
Kessler says Alibaba is making steady progress on its retail business, particularly when it comes to mobile sales.
“Despite significant market leadership, BABA trades at notable discounts to peers, based on our median forward P/E and P/E-to-growth analysis,” Kessler says.
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Bank of America analyst Eddie Leung is predicting full-year fiscal 2019 earnings before interest, taxes, depreciation and amortization growth of 31 percent from Alibaba. He’s also forecasting fiscal 2019 EPS of $4.06 and fiscal 2020 EPS of $4.97.
“We expect Alibaba to remain the leading e-commerce [company],” Lueng says. “Fast sales growth offsets margin pressure.”
CFRA has a “strong buy” rating and $216 price target for Alibaba. Bank of America has a “buy” rating and $235 price target for BABA stock.
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Alibaba Group Holding Ltd Earnings: What to Expect From BABA Stock originally appeared on usnews.com
