Shares of eBay (EBAY ) have climbed 23% over the last year, and Morgan Stanley (MS ) analysts just recently “double upgraded” the stock. With that said, investors must still consider how eBay is expected to perform in the first quarter, as Q1 will likely have a greater impact on eBay’s near-term price movement than Morgan Stanley’s positive long-term outlook.
Morgan Stanley analysts raised their eBay rating to “overweight” all the up way from “underweight.” The investment bank also up its price target from $36 per share to $58 a share, which marks a nearly 40% premium compared to eBay’s closing price on Wednesday.
The reason for this substantial upgrade centers on the fact that eBay, which split from PayPal (PYPL ) a few years ago, will finally start to transition away from the online payment platform—with a full transition expected by mid-2020. “EBay acting as both marketplace and payment intermediator could simplify and reduce costs for merchants, who would pay a single fee to eBay,” analyst Brian Nowak wrote in a note to clients.
However, eBay’s recent upgrade and year-long momentum don’t mean investors should consider buying the stock ahead of its Q1 earnings report.
Therefore, we have to look at what to expect from eBay’s first quarter earnings results to let investors decide if they want to buy eBay stock in order to take home some possible near-term gains.
Latest Outlook & Valuation
EBay’s Q1 revenues are projected to surge by 17.2% to reach $2.6 billion, based on our current Zacks Consensus Estimates. Meanwhile, the company’s EPS figure is expected to expand by 8.2% to reach $0.53 per share.
It is also worth noting that eBay has experienced nothing but positive Q1 earnings estimate revision activity recently.
Of course, revenue and earnings growth estimates are just two of the many metrics investors will consider when eBay reports its first quarter financial results.
Heading into Thursday, eBay was trading with a Forward P/E of 21.9, which marks a substantial discount compared to the “Internet – Commerce” industry’s average of 49.7. Investors should be excited to see that eBay offers such great value, especially compared to its industry, for a company that is expected to experience big Q1 revenue growth.
EBay has also consistently traded at this earnings multiple over the last year, while its stock price has climbed. This signals that eBay’s earnings estimates have also continually climbed higher over this period.
Earnings ESP Whispers
Investors will also want to understand what chance eBay has to surprise with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Ebay is currently a Zacks Rank #2 (Buy) and sports an Earnings ESP of 0.31%. The company’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $0.54 per share, which comes in 1 cent above our current consensus estimate.
Therefore, investors can consider eBay a stock that looks poised to top Q1 earnings estimates when it reports its Q1 financial results after market close on Wednesday, April 25.
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