What happened
Storied South American e-commerce company MercadoLibre (MELI 3.09%) experienced a bit of a fire sale on the stock market Monday. Its shares closed the day almost 5% lower on the back of a recommendation downgrade from a prominent U.S. bank. By contrast, the S&P 500 index did relatively well, rising by 0.2%.
So what
The downgrade came from none other than Big Four lender Bank of America. That morning, analyst Robert Ford Aguilar pushed his recommendation on MercadoLibre down one peg to neutral. Prior to that, he had tagged the e-commerce specialist as a buy. His move was accompanied by a price target cut to $1,350 per share from the preceding $1,680.
The source of Aguilar's concern is a set of new cross-border commerce regulations in Brazil. Transactions of up to the equivalent of $50 are subject to a 17% value-added tax (VAT), although they are exempted from a 60% import tariff.
Although this represents something of an improvement over the previous regime, which levied both the VAT and the tariff on such purchases, the analyst wrote that MercadoLibre's "Brazilian merchant base, in large part, competes with tax-exempt cross-border offers... An official $50 exemption would encourage new entrants, activate existing channels, and attract greater investment, in our view."
Now what
While Aguilar pointed out a potentially impactful change in one of MercadoLibre's markets, it's important to bear in mind that not every pundit would agree with that level of impact. More than a few analysts remain rather bullish on the company; collectively, they're forecasting a near-doubling of per-share profitability for the company this year compared to 2022, due in no small part to revenue that's predicted to rise by 28%.
