JD.com Analysts Buy Into E-Commerce Giant's Consistent Execution Amid Uncertain Times

Shares of Chinese e-commerce company JD.Com Inc JD are trading in record territory for the second straight session, thanks to strong first-quarter results.

The JD.com Analysts

Stifel analyst Scott Devitt maintained a Neutral rating on JD.com and raised the price target from $43 to $50.

BofA Securities analyst Eddie Leung reiterated a Buy rating and raised the price target from $51 to $60.

UBS Securities analyst Jerry Liu maintained a Buy rating and raised the price target from $53 to $67.

Mizuho Securities analyst James Lee maintained a Buy rating and raised the price target from $58 to $62.

JD's stock traded around $55.17 per share at time of publication.

JD.com To Continue To Gain Market Share For Years To Come

JD.com's first-quarter top-line beat reflected a surge in demand for household goods and fresh grocery products, Devitt said. The analyst noted the company's omnichannel supermarket group saw 47% quarter-over-quarter growth, and demand for healthcare products and services, cosmetics and other household-related categories also increased.

Active customer growth of 25.4 million exceeded Stifel's estimates, bringing the total number of annual active accounts to 365 million. The analyst also noted engagement on the platform accelerated, with mobile DAU growth of 46% year over year, the fastest growth rate in nine quarters.

"We believe JD will continue to benefit from the accelerated shift in eCommerce adoption and expect a recovery in discretionary categories as conditions normalize," Devitt wrote in the note.

Stifel believes JD.com is well positioned to leverage on the China e-commerce market that boasts of sales of over $1 trillion and continue to gain market share for years to come.

See Also: JD.com Plans To Kickstart Hong Kong IPO As US-Listed Chinese Firms Increasingly Look Toward Home

JD.com Is Growing Faster Than The Industry

JD.com has been growing faster than the industry's online retail sales of physical products, Leung said. The analyst believes the company's trusted brand has led to an increase in repeat customers and its integrated supply chain and sourcing capability from its direct sales operation have reduced fulfilment issues amid the epidemic lockdown.

The reduced need for customer incentive and growing economies of scale have helped margin expansion, according to Leung.

With the company indicating the fashion and home appliance categories are recovering to pre-epidemic levels in May, the analyst expects revenue through the remainder of the year to grow by mid-20% and operating margin to continue expanding year over year.

JD.com's Consistent Execution And Post COVID-19 Traction Increases Conviction

JD remains one of the top picks at UBS, as changing user behavior post quarantine is driving strong online GMV growth. Liu said the company's increasing sales along with cost discipline has driven consistent margin expansion.

The company saw good growth in the electronics and supermarket categories in the first quarter, with home appliances and other discretionary categories having improved in the second quarter thus far.

The analyst sees sustained growth in the second half of 2020 thanks to some pent-up demand.

"JD's consistent execution and post Covid-19 traction with consumers give us more conviction in the company's near to medium term revenue growth and margin expansion," Liu wrote in the note.

Strong Q2 Guidance Indicates Pent-Up Demand For Discretionary Items

JD.com's quarter showed a powerful pull-forward effect of online shopping for essentials and online pharmacy. Lee said the strong second-quarter year-over-year revenue growth guidance of 25%, indicated pent-up demand for discretionary products.

The analyst is encouraged by the surgical approach in lower-tier markets on high-quality branded products as opposed to relying on deep discounts. He is also constructive on the long-term prospects of online pharmacy.

"We believe the positive structural impact of COVID-19 will continue to drive operating leverage and margin expansion," Mizuho said.