Deutsche Bank Sees The Positive In Facebook’s Recent Performance
Deutsche Bank has named Facebook as its most preferred choice among all the large internet shares. The bank describes the company’s valuation as very attractive and also commented on its collection of potentials. According to Lloyd Walmsley of Deutsche Bank, Facebook is the choice risk/reward in the large capitalization internet sphere considering that Facebook has a primary potential to stabilize its engagement and also monetize its Stories Format.
Walmsley noted that the combination of those factors would likely propel a re-acceleration of the company’s growth in the middle of 2019. He also commented on the current valuation of the company which he considers extremely attractive.
Impact of Scandals
Facebook is yet to recover from the effect of the scandal of Cambridge Analytica which revealed that the internet titan allowed a third party access sensitive information belonging to over eighty million users without the consent of the users.
Reports indicate that the stock of the company has fallen into the bear market as it slipped with over 37% from a previous high earlier in July. According to Wall Street, a bear market refers to a fall of over 20% from the stock’s high on a 52-week scale. Walmsley stated that the Bank has made no changes as to the estimates. Rather, they only reiterated the buy rating of the company’s shares and maintained the financial estimates previously given. While attempting to defend the shares of Facebook, he argued that the related pullback caused by the negative sentiment has only made the valuation of the company extremely attractive.
Sources report that the company is taking more stringent steps to combat the 20% stock slide or more. The company announced over the course of this past weekend that it has plans to buy back extra $9 billion shares of the company. This buyback is expected to come as an addition to its earlier announced buyback plan totaling about $15 billion which it announced in 2017. The news reportedly caused the stock of the company to rise on Monday and it closed the trading day at $141.85 which amounts to a 3.2% increase.
In an announcement last week, it made it known its share repurchase program. It, however, remains at the discretion of the management the time and manner by which it would carry out the buybacks as there isn’t an expiration date for this program.
In general, companies are not particularly good at getting the accurate time for share repurchases. However, news suggests the tech titan regards its shares as being undervalued. It is pertinent to note that even with the scandals, the user metrics of the company has managed to remain resilient and that is what the bulk of its paying customers are concerned about. In addition, this repurchase programs can help in prepping up its shares.
Impact Of buybacks
Facebook has put in more efforts into its buyback activities in recent years. Analysts have noted that funding the repurchases with available free flow of cash would be easier. The company generated free cash flow of more than $4.1 billion in just the fourth quarter of the year.
At the end of the quarter, it also had more than $41 billion in both cash and cash equivalents. Of the entire cash, overseas holding came in at $13.6 billion but the tax reform last year helped in freeing up cash held overseas for every company. The freed up cash, in turn, made it easier for the companies to repatriate cash and also escape negative tax consequences.
According to experts, buybacks only help in mitigating dilution from compensation which is stock-based and also means the company ends up delivering lesser value to the public shareholders.
However, all these recent repurchasing activities have started leading to a reduction of shares outstanding which has translated into earnings accessions for the investors. Although the company still has a lot of issues to work on, analysts have noted that the boost in buyback might calm the unrest of investors for the time being.
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