Shares of Facebook, Inc. (NASDAQ: FB) traded to an all-time high on slightly heavier than normal volume today. Facebook is scheduled to report third quarter 2015 earnings on Wednesday, November 4. Shares closed at an all-time high of $102.19 after hitting an intra-day high of $102.85 earlier in the afternoon. FB shares traded down, marginally, to near $102 in the NASDAQ after-hours session.
Over the past year, FB shares have returned 27.3 percent. Over the same period, the Dow Jones Industrial Average (^DJI) has returned 4.9 percent.
Facebook’s 5 p.m. ET conference call and release of financial results after the market close on November 4 are forecast by Wall Street analysts to bring news of FB earnings per share of $0.52 for the third quarter. Revenues of $4.37 billion are the third quarter consensus for Facebook. Forty-five analysts publish FB EPS estimates. Thomson Financial Network takes an average of the 45 numbers and publishes it. Other financial information providers provide similar services. These averages are often referred to as “analysts’ consensus estimates.”
The stock market is a game of expectations, relative expectations, and the way they change. On November 4, Facebook can miss, meet, or beat the analyst consensus estimate. How the stock market reacts to misses, meets, and beats is seen by some as being as important as the underlying earnings news itself.
For example. yesterday McDonald’s Corp. (NYSE: MCD) surprised Wall Street with a 9.4 percent EPS beat, as reported by the Inquisitr. Other than the EPS number, almost all of McDonald’s growth metrics are in the single digits. In fact, McDonald’s gross sales are falling across virtually every time frame, and are expected to continue to fall for the foreseeable future. Yet, the market drove MCD shares to a new high again today, finishing up 1.6 percent or $1.72 on almost double the daily volume average. FB share volume today, by comparison, was only about one-third greater than average.
Over the past 90 days, the analysts’ consensus EPS estimate for FB shares has been continually increased. The $0.52 forecast for the third quarter was at $0.50, 90 days ago. Over the same time, FB EPS estimates for the fourth quarter have grown from $0.61 to $0.63; for all of 2015, from $2.01 to $2.07; and for 2016, from $2.66 to $2.75.
Current FB EPS estimates represent growth of 20.9 percent for the third quarter, 16.7 percent in the fourth quarter, 16.9 percent this year, and 32.9 percent next year. Analysts see FB EPS growth averaging 28.2 percent annually between 2016 and 2020.
The $4.4 billion in revenue Facebook is expected to report for the third quarter represents year over year growth of 36.4 percent. Full 2015- and 2016-year sales targets of $17.2 billion and $23.4 billion, if met, would represent growth of 38.0 and 35.7 percent in each year.
Facebook carries $14.6 billion in cash and $149.0 million debt. The company’s 0.38 percent debt to equity ratio means that it is virtually debt-free. By comparison, Amazon has a debt to equity ratio of 152.6 percent, Microsoft’s is 44.2 percent, Alphabet’s is 7.1 percent, and Apple Inc’s’ (NASDAQ: AAPL) is 43.3 percent. Facebook is growing its raw sales in the high 30 percent range with almost no debt. Facebook’s analyst sales growth forecast is remarkable, and EPS estimates have continually been ratcheted up.
Facebook last reported an operating margin of 32.4 percent and a profit margin of 18.7 percent. Facebook has a return on equity of 9.5 percent. The social media giant has beat EPS expectations in its last four quarterly reports.
Can FB stock continue higher after Facebook reports earnings, like Microsoft, Alphabet, and Amazon? Is the market currently rewarding companies who are able to deliver growth? The average annual analyst price target for FB stock is $112.57. Targets range from $68 to $146.
[Feature Photo by Stephen Lam/Getty Images]