Long-Time Alibaba Bull Just Slashed His Price Target

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  • Alibaba Group Holding Ltd BABA declined 37 percent year-to-date, falling to a post-IPO low.
  • MKM Partners' Rob Sanderson slashed the firm's price target from $105 to $85, a near 20 percent decline.
  • Though MKM is taking a more cautious tone on the stock, Sanderson reiterated the firm's recommendation to accumulate "the stock on weakness."

Alibaba has taken a disproportionate hit from investors' concerns over China, MKM Partners' Sanderson argued in a new research note. The stock has declined 37 percent this year, compared with a 12 percent decline in iShares FTSE/Xinhua China 25 Index FXI and a 17 percent increase in TENCENT HOLDINGS ADR TCEHY.

Sanderson said that with a "strong underlying story and compelling valuation," MKM recommends "accumulating the stock on weakness." However, Sanderson did warn against "severe currency devaluation." Specifically, as the U.S. nears a new monetary policy tightening cycle, Sanderson said that there is a "growing probability" that China will abandon its quasi-peg to the dollar – particularly if the dollar starts to appreciate. Sanderson invoked prior massive devaluations in Mexico, Thailand and Russia as evidence that "this may get ugly in the intermediate term."

In a new note, Wendy Huang with Macquarie Capital Securities generally agreed with MKM's 12-month price target (which she pegged at $80 instead of $85), but suggested that the stock may see continued pressure to its revenue growth and gross margins. Sanderson's analysis suggested that the gross margin pressure will be modest – while Alibaba can capitalize on the large economic shift from offline to online purchasing.

Despite opening the week lower following a weekend Barron's article, Alibaba has regained ground after a 3.7 percent increase on Tuesday.

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Posted In: Long IdeasPrice TargetReiterationAnalyst RatingsMoversTechTrading IdeasAlibabaMacquarie Capital SecuritiesMKM PartnersRob SandersonWendy Huang
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