On Wednesday, BofA Securities maintained a positive stance on Baidu (NASDAQ:) stock, reiterating a Buy rating with a steady price target of $104. The endorsement comes despite an anticipated one-off cost impact stemming from Jiyue Auto, a joint venture between Baidu and Geely, which Chinese media reported is dissolving due to a liquidity crisis. According to InvestingPro data, Baidu currently trades at $79.56 with a P/E ratio of 10.56, while maintaining a “GREAT” overall financial health score.
The analyst at BofA Securities expects Baidu’s business to stay on course in the fourth quarter of 2024, with Baidu Core’s total revenue projected to reach approximately 27 billion RMB, a slight 2% year-over-year decline. However, the adjusted operating profit for Baidu Core in the fourth quarter is estimated to be around 4.3 billion RMB, which translates to a 16% operating profit margin, after accounting for the impact from the Jiyue Auto situation.
With the next earnings report due on February 26, 2025, InvestingPro subscribers can access detailed financial analysis and exclusive insights to better understand Baidu’s performance metrics, including its impressive 51.1% gross profit margin.
Baidu Core is anticipated to reach a turning point, according to the analysis. The rate of year-over-year decline in advertising revenue is expected to hit its lowest in the fourth quarter of 2024, with improvements forecasted for the first and second quarters of 2025, and a return to positive growth by the third quarter of 2025. This optimism is partly based on the belief that artificial intelligence will continue to bolster the cloud business, potentially accelerating growth in the last quarter of 2024 and throughout 2025.
The price objective of $104, equivalent to approximately 101 Hong Kong dollars, has been reaffirmed by BofA Securities. This valuation reflects confidence in what is described as a “2025 turnaround opportunity” for Baidu, suggesting a strong future performance for the tech giant despite current challenges.
InvestingPro analysis indicates that Baidu is currently undervalued, with strong analyst consensus supporting a bullish outlook. For comprehensive insights into Baidu’s valuation and growth potential, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Baidu has been the subject of several analyst adjustments. Jefferies maintained a Buy rating on Baidu, raising its price target slightly to $128, with an anticipation of favorable fourth-quarter revenue performance. The firm also expects the company’s year-over-year decline in advertising revenue to narrow in the first quarter of 2025, due to Baidu’s strategic adjustments.
On the other hand, Bernstein, JPMorgan, and Susquehanna have downgraded Baidu’s stock to Neutral, citing concerns about the company’s earnings potential and challenges in monetizing AI-powered search capabilities. JPMorgan also reduced Baidu’s 2025 estimated adjusted earnings per share by 21%, positioning it 17% below the Bloomberg consensus.
Despite these downgrades, Mizuho (NYSE:) Securities, Benchmark, and Tiger Securities have maintained positive ratings, anticipating revenue growth re-acceleration in 2025. These recent developments highlight Baidu’s ongoing commitment to AI and technology as it navigates a challenging macroeconomic environment. Baidu’s AI Cloud business grew by 11% and the company continues its share buyback program, with $161 million of shares repurchased since early Q3.
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