2023-05-17 11:28:55 ET
Summary
- Wow, did you see those earnings from Baidu?
- They were excellent, as Baidu crushed consensus EPS and revenue estimates again.
- Also, did you know that Baidu has beaten consensus revenue and EPS figures for 16 straight quarters?
- Baidu is firing on all cylinders, and its stock price should go much higher as we advance.
Baidu ( BIDU ) recently released a bullish earnings report, beating top and bottom line estimates. Moreover, it's not just this quarter. Baidu continuously outperforms, beating EPS and revenue estimates in its last 16 quarters . Therefore, we can expect further outperformance as the company advances. Additionally, Baidu is exceptionally cheap here, trading at just 12 times forward consensus EPS estimates and two times forward sales projections. Furthermore, Baidu's technical image is increasingly bullish, and the stock should appreciate considerably as Baidu advances in the coming months and years.
Technically - Baidu Should Move Higher
Baidu got significantly oversold toward the end of last year, bottoming below $80 during the panic-induced selloff. Now, we see a bullish inverse head and shoulders pattern developing. Moreover, the stock recently rebounded off the critical support area around the $110-$120 range. Now we need Baidu to move above the $150-$160 resistance, and the stock can continue moving higher after that.
How About Those Baidu Earnings
Baidu's non-GAAP EPADS came in at $2.34 , beating the consensus estimate by 50 cents. The company also outperformed on revenues, providing $4.54B, a $230M beat. Baidu's core revenue came in at $3.35B, an 8% YoY gain. iQIYI revenue increased by 15% YoY to $1.22B. Conversely, Baidu's R&D expenses decreased by 3% to $790M YoY. Baidu's robust earnings illustrate that the company continues delivering results well above estimates in a relatively challenging economic environment. Moreover, Baidu should continue outperforming forecasts as the company advances in the coming years.
Wait, What is Baidu's Market Cap?
Baidu's estimates are for roughly $20 billion in revenues this year, while its market cap is only around $45 billion. Therefore, the stock is only trading at about two times sales, remarkably cheap for a company in Baidu's position. Also, if we dig deeper, Baidu has roughly $13B in long-term debt and other borrowings, while its cash and ST investments position is around $27B. Considering everything on the company's balance sheet, Baidu's enterprise value is only about $32B . Therefore, Baidu is even more attractive than it appears if we look at the company's EV.
Baidu - Still Exceptionally Cheap
While consensus EPS estimates are for about $11 next year, Baidu could achieve $12 or higher based on its outperformance record. Baidu has surpassed consensus EPS and revenue estimates each quarter in the last four years. Thus, there's a high probability that Baidu will continue beating analysts' figures.
Therefore, we should see this trend continue, and $12 seems like a fair EPS target in 2024. Baidu is still trading around $120-$130, and its forward P/E ratio is likely only about 10. Ten or twelve times earnings is a remarkably low valuation for a market-leading company, likely to grow revenues at about 10-15% annually in the coming years. Furthermore, as Baidu becomes increasingly efficient, it should produce more profits. Therefore, we could continue seeing substantial EPS growth of 15-20% or higher as the company advances.
Here's where Baidu's stock could be in the coming years:
The year | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
Revenue Bs | $20 | $22.5 | $25 | $27.5 | $30.5 | $33.5 | $37 |
Revenue growth | 11% | 12% | 11% | 12% | 11% | 10% | 10% |
EPS | $10 | $12 | $14 | $16.50 | $19.66 | $23.20 | $27 |
EPS growth | 17% | 20% | 17% | 18% | 19% | 18% | 17% |
Forward P/E | 10 | 15 | 17 | 18 | 19 | 18 | 17 |
Stock price | $120 | $210 | $280 | $374 | $440 | $486 | $525 |
Source: The Financial Prophet
Baidu's valuation is highly suppressed here, and its P/E ratio won't stick around 10-12 for long. Furthermore, I'm using relatively low forward P/E estimates. As a high-value growth stock, Baidu's P/E could climb above 20 and reach around 30. This dynamic would enable its stock price to appreciate much more rapidly than my projections suggest. Also, while my EPS and revenue projections are slightly higher than the consensus estimate, they remain reasonable. Mainly because Baidu is accustomed to beating estimates, and the company has much more potential than the market currently suggests. Therefore, Baidu's stock should appreciate considerably, potentially hitting $300-$500 several years from now.
Baidu - Risks Going Forward
While I remain committed to my bullish assessment, there are some risks that investors should consider before putting their money into Baidu. There are regulatory and political risks. For instance, the Chinese government could impose stricter guidelines relative to tech businesses in China, negatively impacting Baidu's shares. In addition, we may see sanctions or rising tensions with China in future years. The company could also underperform and produce less growth than expected. The underlying risks are plausible, and investors should consider these and other risks carefully before buying Baidu shares.
For further details see:
Baidu: Crushes Earnings - Strong Buy Now