Baidu’s (BIDU-NASDAQ) stock price has reached our fundamental price target of $268. As a result we are closing our buy recommendation on the stock.
We now believe the Q3 EPS beat is largely priced in – We started coverage of Baidu (BIDU-NASDAQ) on September 3rd with a buy recommendation. Our bull thesis was that we expected Q3 adjusted EPS and Q4 guidance to materially beat consensus, driven by the spinoff of its money-burning Takeout Delivery business. These operating losses were not being fully accounted for in the share price in our opinion. BIDU is up 16% since Perspectec launched coverage with a Buy recommendation a month and a half ago.
Baidu (BIDU-NASDAQ) is trading at 27x our 2018 adjusted EPS of US$9.85 (29x consensus EPS of $9.22) versus Alphabet (GOOGL-NASDAQ) trading at 25x its 2018 GAAP (same as adjusted ex-anti-trust fines) EPS. This is the typical premium Baidu has traded at versus GOOGL. Baidu shares appear to be fully valued at our current EPS estimate.
Expectations for Q3 and Q4 – We are forecasting an adjusted EPS of ¥14.40 for Q3 2017 and ¥16.31 for Q4 2017. At a USD/RMB exchange rate of 6.6, this translates to US$2.18 and US$2.47 respectively.
We are forecasting a revenue of ¥23.6 billion (vs. Guidance of ¥23.44 billion) for Q3 2017 and ¥23.9 billion for Q4 2017. At a USD/RMB exchange rate of 6.6 this translates to US$3.57 billion and US$3.62 billion respectively.
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For the purposes of complying with NYSE, NASDAQ and all Self-Regulatory Organizations, Perspectec Inc. has assigned the following rating system BUY, HOLD/NEUTRAL, SELL for the securities which are the views expressed by an analyst, Independent contractor, and or an employee of Perspectec Inc. The information and opinions in these reports were prepared by Perspectec Inc. or an analyst, independent contractor. Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Perspectec Inc. makes no representation as to its accuracy or completeness.
