Facebook Inc (FB) Downgraded By Pivotal

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Facebook Inc (NASDAQ:FB) soared back up over $50 per share today after a difficult trading day on Thursday. One of the reasons the company’s stock might have declined was a downgrade from Pivotal Research analyst Brian Wieser. However, as today’s share price indicates, it wasn’t enough to keep the social network’s stock down.

Facebook Inc (FB) Downgraded By Pivotal

Facebook rose too far too fast

Wieser downgraded Facebook Inc (NASDAQ:FB) from Buy to Hold because he says the company’s shares simply rose too high too fast. He did maintain his $48 per share price target on the stock, but he thinks that as investors have chased the company’s shares upward, they have over-corrected to the upside because of how bearish the market was on the social network before its second quarter earnings report.

He suggests that investor optimism for Facebook may persist before the company’s next earnings report, only to be let down if the company does not exceed or, at the very least, meet their expectations.

Facebook’s underlying business is positive

He remains positive in general on Facebook Inc (NASDAQ:FB)’s underlying business. He’s still looking for 55.5 percent ad revenue growth in the third quarter, which is just slightly lower than the 61.2 percent growth the company reported in the second quarter. He cites tougher comparables and the launch of new products toward the second quarter which should have started generating revenue during the third quarter.

However, he said the more investors drive up Facebook’s price the harder it is for him to “get excited” about the company’s stock price where it is right now. He said his target price is based on the production of $6 billion in free cash flow after taxes on $22 billion in revenue by 2018. That’s three times the size of the social network this year. According to Wieser, their revenue estimates are in line with consensus, and if investors are expecting more than that, they are more likely to be disappointed when the social network reports its third quarter earnings.

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