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Wall Street Says Baidu Stock Has Significant Upside Potential

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Oct. 30 2019, Updated 5:01 p.m. ET

Baidu stock returns

Baidu (BIDU) stock is down over 31.3% year-to-date. The stock has fallen close to 35.0% since May 2019 and is trading close to its 52-week low. Baidu stock was impacted recently due to unimpressive first-quarter results and the impending trade war.

In the first quarter, Baidu posted a GAAP (generally accepted accounting principles) loss for the first time in 15 years. The company’s bottom line was impacted by an aggressive marketing campaign, which resulted in an adjusted operating margin of just 2.0% in the first quarter, down from 26.0% in the prior-year period. Baidu was the lead sponsor for China’s mega event (known as Chunwan). This event was the country’s most viewed event. It is estimated that Baidu spent upwards of $40 million to bag this sponsorship.

Baidu is known as China’s (FXI) Google (GOOGL) and accounts for 70.0% of the country’s digital advertising market. However, Baidu stated that its traffic acquisition costs rose 41.0% to $474 million in Q1. Further, Baidu also warned investors of slowing revenue growth in the second quarter.

While Baidu expects sales to be flat YoY, analysts had estimated revenue to grow by 13.3% in the second quarter, which will also impact the bottom line significantly.

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PE multiple

Baidu stock is currently trading at a forward PE multiple of 10.4x. In comparison, its earnings per share are estimated to fall by a massive 70.0% in fiscal 2019 and then rise by 86.0% in fiscal 2020. Baidu’s estimated five-year earnings growth stands at 7.8%. Analysts had earlier expected earnings in 2019 to fall by 24.0%. Investors will likely need to revisit the stock once its earnings decline stabilizes.

How do analysts view Baidu?

Out of the 33 analysts covering Baidu, 19 recommend a “buy” and 12 recommend a “hold.” There are two “sell” recommendations. The analysts have an average 12-month stock price target of $175.0 for Baidu, indicating the stock has an upside potential of 61.0% from its current price.

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