Is It Time To Buy The Dip In Facebook? KeyBanc Weighs In

Facebook, Inc. FB stock peaked at $195.32 earlier this year, but the latest data privacy saga contributed to a sell-off below the $170 level. Investors are naturally asking if they should be taking advantage of the dip or continue selling the stock.

The Analyst

KeyBanc Capital Markets analyst Andy Hargreaves maintains an Overweight rating on Facebook's stock with an unchanged $245 price target.

The Thesis

The social media company is very much facing a "firestorm of news headlines" and the company's handling of the situation is "poor," Hargreaves said in a research note. The company's woes are very likely to impact the company's business through. Advertisers may become hesitant to use the platform, while user engagement could fall. Facebook also faces potential regulatory action and operational distractions.

At the same time, the risk to Facebook's long-term cash generation "seems likely to be modest in each case," Hargreaves said. This implies the stock's sell-off is due to "hype and momentum" but represents a buying opportunity and justified by the stock's current valuation. Specifically, the stock's valuation implies the company will see a 43 percent reduction in its two-year EBITDA compounded annual growth rate which "seems unlikely."

"Facebook created one of the most powerful marketing platforms the world has ever seen," Hargreaves wrote. " While it seems clear that it underestimated the implications of this platform and has not reacted appropriately in some cases, we do not believe the current issues will result in the platform being permanently impaired."

Price Action

Shares of Facebook were trading lower by nearly 1 percent at $166.50 ahead of Wednesday's opening bell.

Related Links:

Analysis: The Facebook Data Controversy, And Why Wall Street Could Take It Harder Than Washington

Credit Suisse: Facebook Investors Should Expect Continued Risk After Cambridge Analytica Scandal