KeyBanc: Facebook Could Have 22% Upside

Analysts at KeyBanc Capital Markets turned incrementally bullish on Facebook Inc FB after the company reported its third quarter earnings.

KeyBanc's Andy Hargreaves maintains an Overweight rating on Facebook's stock and boosted the price target from $200 to $220.

The key to the analyst's bullish stance lies with Facebook's ad business, in which total impressions rose 10 percent from the same quarter a year ago,  although it marks a decrease of 19 percent from the prior quarter, Hargreaves said in a Wednesday note. But the sequential decline was offset by a 35-percent increase in average ad pricing from a year ago and 24 percent from the prior quarter. (See Hargreaves' track record here.) 

The strong ad business signals to investors the "extraordinary demand for and effectiveness" of Facebook's ad products, Hargreaves said. Looking forward to 2018, the social media company's ongoing ad strength and momentum resulted in the analyst boosting his 2018 revenue estimate from $51.3 billion to $53.3 billion. This offsets a nearly $2 billion boost to 2018's expense estimates and helps drive KeyBanc's overall 2018 EBITDA estimate higher from $27.4 billion to $28.4 billion.

Of particular note, Facebook's heavy level of investments in video content and possibly marquee sports events aren't included in the analyst's revenue estimate, which implies even further upside to current estimates.

Facebook's improvements in its ad effectiveness implies the potential for "significant future growth," Hargreaves said. KeyBanc's revised $220 price target is based on a 23x EV/EBITDA using a next-12-months EBITDA estimate of $26.8 billion.

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