Is Facebook Inc (NASDAQ:FB) a good stock to buy? At least two investment banks in the past week are confident that it is indeed a great stock to buy. Today, Piper Jaffray analyst Gene Munster reiterated his firm’s “Overweight” rating on the world’s largest social networking company’s shares, with a heightened price target of $120 per share from its previous $92 target. The new price target assigns a considerable 45% upside to the shares based on Friday’s closing price, and those shares are up by 2.44% today. Last week, the same optimistic sentiment was expressed by RBC Capital Markets, with analyst Mark Mahaney reiterating an “Outperform” rating on the stock with a price target of $105 per share. Vital to the confidence of both analysts in Facebook Inc (NASDAQ:FB) is their belief that the technology behemoth has room to grow. In fact, both of them peg Street estimates as cautious. Mahaney sees Mark Zuckerberg’s creation as currently having the same revenue base as Google Inc (NASDAQ:GOOGL) had in 2007. He argues that for the next year, the Street sees Facebook having 34% growth whereas Google sustained 47% growth with the same revenue base.
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The RBC Capital Markets analyst sees video and Instagram as key growth engines for Facebook Inc (NASDAQ:FB) in the coming quarters. He estimates that autoplay video ads and Instagram will generate over $3.4 billion in incremental revenue, and over $0.40 in incremental EPS for 2016. For 2017, he estimates that Messenger and WhatsApp will add over $2.2 billion in incremental revenue and more than $0.25+ in incremental EPS. He adds in his note that the Oculus Rift virtual reality headset could potentially add a further $500 million or more to the social networking company’s topline in 2017.
Piper Jaffray’s Gene Munster agrees with Mahaney that virtual reality, particularly Facebook Inc (NASDAQ:FB)’s play in the segment with Oculus VR, is an opportunity just waiting to be tapped. He said in his note that Piper Jaffray expects human interaction to move from smartphones and computers to virtual reality in the next decade. “Big picture: Oculus is a valuable insurance policy, and gives us greater confidence in Facebook’s ability to sustain usership and revenue growth across its portfolio of products over the next 10+ years which is a positive for FB’s multiple,” Munster writes.
As optimistic as RBC Capital Markets and Piper Jaffray are in Facebook, hedge funds tracked by Insider Monkey also appear to be very positive in their outlook about the company. Facebook Inc was in 129 hedge funds’ portfolios at the end of the first quarter of 2015. There were 118 hedge funds in our database with Facebook positions at the end of the previous quarter.
In terms of insider transactions, there were minor sales of the company’s shares by insiders this month. Chief Technology Officer Todd Michael Schroepfer sold 50,000 of his shares this month. Chief Product Officer Christopher Cox did the same to the tune of 36,934 shares. Vice President, General Counsel and Secretary Colin Stretch also sold 3,000 shares in June.
Now, let’s look at how hedge funds have been trading Facebook Inc (NASDAQ:FB).