Analysts earn their keep by updating their opinions and reassessing the fundamentals, so I shouldn't be surprised that Deutsche Bank analyst Alan Hellawell is at it again with Baidu
Hellawell downgraded shares of China's leading search engine -- from "buy" to "hold" -- yesterday. Let's go over some of his previous moves on the stock:
- Hellawell upgraded the stock in March of last year.
- Seven months later, he downgraded the dot-com darling.
- Three months later, Deutsche Bank returned to a "buy" rating -- along with many of its peers -- when Google
(Nasdaq: GOOG) threatened to bow out of China.
The sum of Hellawell's moves has been spot-on:
|
Date |
Move |
Previous Close |
|---|---|---|
|
March 24, 2009 |
Upgrade |
$18.26 |
|
Oct. 12, 2009 |
Downgrade |
$42.71 |
|
Jan. 13, 2010 |
Upgrade |
$38.65 |
|
Aug. 23, 2010 |
Downgrade |
$82.17 |
See that? The last time that Deutsche Bank downgraded the shares, Hellawell was able to get his clients back on a few months later at a lower price point. Naturally, this doesn't bode well for longs.
However, most analysts are often too concerned with near-term price movements to grasp the bigger picture. Hellawell's near-term price target was a split-adjusted $21.10 when he upgraded the stock two springtime seasons ago. Baidu has gone on to nearly quadruple that figure. Even yesterday's downgrade came ironically saddled with an upward revision in Hellawell's target, from $80 to $86.
Baidu's meteoric rise -- nearly a 10-bagger since I unwaveringly recommended it to Motley Fool Rule Breakers subscribers three years ago -- has been fueled largely by its ability to trounce expectations. It seems as if every quarter forces the pros to increase their expectations.
Three months ago, Wall Street figured that Baidu would earn $1.21 a share this year and $1.88 a share in 2011. This morning, those net-income-per-share targets stand at $1.40 and $2.16, respectively. After a few quarters of chasing, the disparity can be dramatic. Remember Hellawell's $21.10 target last year? Did anyone dream that it would be less than 10 times projected earnings two years out?
Baidu was the dominant player in China, and Google's hesitancy has only cemented that position. Microsoft's
If Baidu's latest quarter is any indication -- with revenue soaring 74%, and earnings more than doubling -- the chase will continue, despite Baidu's seemingly lofty valuation at the moment.
Do you think Baidu is overvalued at this point? Share your thoughts in the comments box below.
