MKM: Alibaba Has The Best Fundamentals Of Any Mega-Cap Stock

MKM Partners raised its price target for Alibaba Group Holding Ltd BABA by $43 Wednesday, predicting the company’s commerce will grow by 50 percent this year.

Rob Sanderson, managing director at MKM, maintained a Buy on the stock.

The price target increase is driven by “50 percent organic growth in the segment, strong secular trends, dominant market position and [a] 60-percent margin while funding significant investments,” Sanderson said in a note.

Alibaba is MKM’s top pick in Internet mega-caps and has the best fundamentals in the group, the analyst said.

The Chinese e-commerce giant reported a first-quarter adjusted EPS of $1.17 against a 93-cent estimate on Aug. 17 and sales of $7.403 billion versus a $7.13 billion estimate.

The company reported 466 million annual active consumers and 529 million mobile monthly active users, up 22 million year-over-year.

Why Alibaba Is The Best Mega-Cap Internet Name

Alibaba’s fundamentals are the best in sector, according to MKM. The research firm named six of them:

End markets with higher growth and evident acceleration.
Monetization improvement driven by traffic growth and personalization.
The opportunity to build ad load at management’s discretion to drive continued top-line expansion.
Cloud is in an earlier stage in China, and the dominance of Alibaba’s subsidiary Alicloud “may be less contested than” Amazon.com, Inc. AMZN’s AWS is in the west, Sanderson said. Alicloud has crossed the 1-million mark in paying customers and has more market share than its next seven competitors combined, according to MKM.
E-commerce adoption in southeast Asia is “accelerating and just beginning.”
Alibaba’s commerce segment margin is 60 percent, even as major investments —such as in rural China, a $1-billion stake increase in Lazada and the expansion of Tmall — are absorbed.