September 30, 2011, 2:45 PM ET
BIDU: S&P Ups To Strong Buy; A ‘Well-Established Company’
By Tiernan Ray
Shares of Chinese search engine Baidu ( BIDU) continue to trade down in the wake of yesterday’s reports the U.S. Department Of Justice has joined in an SEC and FBI probe of U.S.-listed Chinese ‘Net companies.
The shares are currently own $3.24, or 3%, at $107.12.
S&P’s Scott Kessler today urges investors not to be overly worried about the matter, and he raised his rating on Baidu from Buy to Strong Buy, even though he cut his price target to $150 from $200 on increased risk:
BIDU has lost roughly 1/3 of its market value since reporting Q2 results and providing Q3 guidance exceeding our forecast. We acknowledge uncertainties as to China’s economy/securities, but think BIDU reflects these issues. A senior China gov’t official was recently cited in an unconfirmed report from Xinhua News, indicating China has 500M+ users, and we think BIDU is a prime beneficiary, given its substantial search market share and emerging digital offerings.
Update: Kessler followed up by phone this afternoon in response to my request to discuss the report. His upgrade reflects the fact that although there’s less upside now, based on his lower price target, the certainty of the 40% upside that remains seems to him greater now given that the shares have lost a third of their value in the last three months.
Regarding the concerns about the Department of Justice, the SEC and the FBI, he thinks Baidu is less of a risk than the others in the China Net stocks group.
“I’ve been following this company for a number of years, and I’ve gained a certain degree of comfort with their financial reporting,” he says, when asked about the supposed matter of accounting irregularities in Chinese companies that is at the heart of the inquiry.
“This is a company that had a thorough, extensive road show a few years back,” says Kessler. “This is not a stock that is a product of a reverse merger. This is a well-established company” |
