Do buyers in Meta Platforms inventory know one thing that the remainder of Wall Road doesn’t? Because the firm modified its title from Fb
in late October, the inventory is up 8%. But there’s been no corresponding improve within the consensus estimate of the corporate’s future earnings.
Quite the opposite, the current development amongst Wall Road analysts has been to revise estimates downward. During the last month, way more of the 4 dozen analysts monitored by FactSet have downgraded their earnings estimates for Meta Platforms than elevated it.
On the finish of September, as I pointed out a couple of weeks ago, the consensus analyst EPS estimate for calendar 2022 was $16.12. Now it’s $14.45. There was an analogous discount within the consensus estimate for the 2023 calendar yr. (See the chart under.)
What has brought about the inventory’s rally within the face of declining earnings estimates? The obvious wrongdoer is the corporate’s title change, since — as I reported before the company changed its name — the market usually reacts favorably to call adjustments that get rid of unfavorable references. However might Fb’s title change actually have led to this massive of a rally within the face of declining earnings estimates?
For perception, I reached out to Michael Cooper, a finance professor on the College of Utah and chair of its finance division. In an interview, he stated he was not significantly shocked. In reality, he added, it could be in line with the outcomes of his previous analysis if Meta Platforms’ inventory continues to beat the marketplace for a number of extra weeks. He and different researchers have discovered that the honeymoon glow of a reputation change can final for so long as a few months.
Neither Cooper nor different researchers I’m conscious of have studied the long-term impact of title adjustments. However it’s tough to see the way it will result in a everlasting improve within the inventory worth. Ultimately earnings should catch up.
For the second, although, Meta Platforms has shrewdly modified the narrative away from the terrible publicity about Fb’s impact on our society, and in the direction of the large potential of the so-called metaverse. Few may even agree on a exact definition of the metaverse, and but many are already asserting breathlessly that it may very well be simply as massive and worthwhile because the web. Stocks remotely associated with the metaverse are soaring.
This all appears scarily paying homage to the irrational exuberance on the prime of the web bubble. Until the downtrend in Wall Road consensus estimates reverses in coming weeks, you would possibly need to use this exuberance as a cause to lighten publicity to Meta Platforms inventory.
Mark Hulbert is a daily contributor to MarketWatch. His Hulbert Rankings tracks funding newsletters that pay a flat charge to be audited. He will be reached at firstname.lastname@example.org
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