Social media giant Meta Platforms, Inc. (META) is facing a slowdown in user growth and competition from TikTok. The company is reportedly planning to lay off employees to reduce expenses in the coming months. If the company goes through with the reductions, it might achieve about $5 billion of annual operating expense savings in the next year.

Morgan Stanley’s (MS) Brian Nowak has reiterated the ‘Overweight’ rating on META and sees a 2023 EPS increase of about 10% under this scenario to $10.85 from $9.90. Nowak remains positive about the company’s ability to improve user engagement and its monetization rollout of Instagram.

However, the stock has declined 15.7% over the past month and 6.7% over the past five days to close its last trading session at $136.37.

Here are the factors that could affect META’s performance in the near term:

Discounted Valuations

In terms of its forward P/E, META is trading at 14.30x, 8.8% lower than the industry average of 15.67x. The stock’s forward EV/EBITDA multiple of 6.81 is 9.9% lower than the industry average of 7.56. In terms of its forward EV/EBIT, META is trading at 10.95x, 24.8% lower than the industry average of 14.55x.

Broad Profit Margins

META’s trailing-12-month EBIT margin, net income margin, and levered FCF margin of 33.41%, 28.16%, and 24.53% are 256.9%, 391.2%, and 206.4% higher than their respective industry averages of 9.36%, 5.73%, and 8.01%.

Its ROE, ROTC, and ROA of 25.48%, 17.00%, and 19.81% are 282.7%, 375.4%, and 698.8% higher than their respective industry averages of 6.66%, 3.58%, and 2.48%.

Analysts See Upside Potential

Of the 34 analysts rating META, 27 have rated the stock Buy, five have rated it Hold, and two have rated it Sell. The 12-month median price target of $223.70 indicates a 64% potential upside. The price targets range from a low of $140.00 to a high of $466.00.

POWR Ratings Reflect Promising Prospects

META’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

META has a Quality grade of A in sync with its wide profitability margins. The stock has a B grade for Value and Sentiment, consistent with its low valuations and favorable analyst expectations.

In the 64-stock Internet industry, it is ranked #6.

Click here to see the additional POWR Ratings for META (Growth, Momentum, and Stability).

View all the top stocks in the Internet industry here.

Bottom Line

META’s impending cost-cutting measures might improve its financials. Moreover, its wide profit margins look impressive. Wall Street analysts are bullish on the stock, and thus, it might be a solid buy now.

How Does Meta Platforms, Inc. (META) Stack Up Against its Peers?

While META has an overall POWR Rating of B, one might consider looking at its industry peers, trivago N.V. (TRVG) and Yelp Inc. (YELP), which also have an overall B (Buy) rating.

META shares were trading at $135.23 per share on Tuesday afternoon, down $1.14 (-0.84%). Year-to-date, META has declined -59.79%, versus a -22.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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