Raymond James: Facebook (FB) Stock Is a Buy, Growth Worries and All

Facebook (FB, $373.28) blew past Wall Street's bottom- and top-line estimates when it posted results late Wednesday, yet FB stock slumped Thursday on concerns about decelerating second-half growth as it laps tougher year-over-year comparisons. 

But that doesn't affect the long-term investment thesis on the name, insists Raymond James analyst Aaron Kessler, who reiterated his Strong Buy recommendation on Facebook stock and hiked his price target to $450 from $415.

"Facebook reported strong second-quarter revenue, with 51% foreign-exchange neutral ad revenue growth driven by broad-based strength across advertiser types and verticals (e-commerce, retail, and consumer packaged goods, as well as recovery in COVID-affected verticals like travel and media)," Kessler writes in a note to clients.

The social media giant's second-quarter earnings per share (EPS) of $3.61 topped the Street's forecast of $3.03 a share by a wide margin. Revenue likewise surprised to the upside, at $29.08 billion vs. expectations for $27.89 billion.

The market's immediate problem with FB stock stemmed from the company’s short-term outlook. 

CFO David Wehner said Facebook projects year-over-year revenue growth to slow “significantly” through the end of 2021 as it comes up against difficult comps. Digital ad spending rebounded sharply in the second half of last year from a COVID-caused slowdown, in turn juicing FB's top-line performance.

Wehner added that if the Street takes 2019 as its baseline, growth would slow "modestly" in the second half. 

Raymond James' Kessler says "modestly decelerating growth on a two-year basis" doesn't change the fact that the macroeconomic backdrop remains strong.

"We believe that the strength in the broader digital advertising industry is likely to persist, driven by continued digital transformation and that Facebook is a key beneficiary," the analyst adds. "We continue to expect solid long-term revenue growth; monetization of newer platforms is increasing; and we believe valuation is attractive."

Kessler views are very much in the majority on the Street. Of the 49 analysts issuing opinions on FB stock tracked by S&P Global Market Intelligence, 34 rate it at Strong Buy, seven say Buy, six call it a Hold, one has it at Sell and one says Strong Sell. Their consensus recommendation stands at Buy, with high conviction.

Analysts collectively forecast FB to generate average annual EPS growth of almost 22% over the next three to five years. That's a notably rapid growth rate for a company of this size. Recall that Facebook's market capitalization now tops $1 trillion. 

Lastly, the Street's average target price of $406.39 gives FB stock implied upside of roughly 9% over the next 12 months or so.