UBS Cuts Alibaba Price Target on Near-term Headwinds, Remains Positive Long term

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UBS Cuts Alibaba Price Target on Near-term Headwinds, Remains Positive Long term
Credit: © Reuters.

UBS analyst Jerry Liu lowered the price target on Alibaba (NYSE: BABA ) to $140.00 per share from $150.00 on near-term headwinds.

The lowered price target reflects lower estimates for F4Q22 (Mar Q) and FY23 to mirror “incremental Covid-19 related headwinds, on top of regulatory and macro impacts last year.”

Liu expects to see March online retail sales growth decelerating “significantly” amid a spike in Covid-19 cases across China. Hence, the near-term challenges are likely to force Alibaba to cut costs.

“This will impact supply chains and fulfillment networks, and weaken consumer demand, especially in categories like apparel. We now assume the Jun Q is the trough for Customer Management revenue (CMR) YoY growth vs. Mar Q previously, as we conservatively assume the MoM deterioration in growth near term offsets the easing YoY comparisons. There are some additional growth impacts to domestic on-demand, international e-commerce, and cloud segments, but we also see improvements later this year,” Liu said in a client note.

Still, the analyst remains positive on BABA shares.

“As consumption in China recovers later this year, we expect Alibaba's top and bottom line growth rates to accelerate. With the stock trading at 10x/9x CY22/23 earnings, we believe the risk/reward is attractive given an average of 13% EBIT growth in CY23-25, limited regulatory risks from here, and improving sector-wide cost control. Any positive outcome on ADR listing negotiations between regulators, and to a lesser extent shifting Alibaba's Hong Kong listing to a primary one could be additional catalysts,” Liu said in a client note.

Alibaba stock price is down 1.5% today.

By Senad Karaahmetovic

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