Meta’s ‘meteoric’ shift could power stock to its best day since 2013

Shares of the Facebook parent company were up 19.2% in premarket trading Thursday. Gains of that magnitude, if they carried through to the regular session’s close, would amount to the second largest one-day percentage rally on record for Meta, and the stock’s best performance since July 25, 2013, according to Dow Jones Market Data.

See more: Meta stock spikes nearly 20% as cost cuts and $40 billion for investors overshadow earnings miss

Meta’s fourth-quarter revenue marginally exceeded the consensus view, and the company showed “mixed” profitability in the latest quarter amid a restructuring. “But none of this matters” now that Meta “meaningfully” lowered its capital-expense and operating-expense forecasts, “yielding a sharp reset higher to FCF [free-cash-flow] expectations,” in the words of Piper Sandler analyst Thomas Champion.

Executives at Meta now anticipate $30 billion to $33 billion in capital expenditures for the full year, down from a prior forecast of $34 billion to $37 billion. They also forecast $89 billion to $95 billion in total expenses, whereas their earlier outlook was for $94 billion to $100 billion.

“Despite a strong run off the lows a quarter ago, we acknowledge the change in tone and magnitude of our forecast change,” Champion wrote, while upgrading Meta’s stock to overweight from neutral and boosting his price target to $215 from $136.

“Also, we still see room for upside,” he added. “It would not shock us to see further optimizing. The macro is still difficult, but we are *slightly* raising estimates for the first time since 2021. We can overlook the gaudy Metaverse investment in this new light.”

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RBC Capital Markets analyst Brad Erickson also keyed in on Meta’s greater focus on expense discipline in a note to clients titled, “Mark to Market: You’re welcome.”

“Investors’ number one concern coming in was whether management would reduce opex/capex and boy did META deliver,” he wrote.

Meta remains his favorite large-cap name this year, as he notes that “incremental [revenue] in front of conversion improvements is a key source of upside and the newfound cost discipline invites cash flow-sensitive investors back into a story that is shedding significant overhangs of the past 18 months.”

Still, he acknowledged that bears may quibble with the new attitude on spending. “Given the meteoric capex narrative change vs. 90 days ago we do have to wonder to some degree if META has delayed some of the more compute-intensive investments that are need to further their AI rollout,” Erickson wrote.

He rates the stock at outperform and upped his price target to $225 from $160 Thursday.

See also: Too little, too late? Snap stock plunges as turnaround remains a work in progress

Of course, expenses aren’t the whole story for Meta, which still must contend with a shakier economic landscape, competitive challenges, and the fallout of Apple Inc.’s
AAPL,
+0.79%
privacy-related moves.

“Dramatics aside, 2022 was a challenging year for believers in the House of Zuck with many pushed to the brink or throwing in the towel culminating in the capitulation we saw last quarter,” wrote Bernstein analyst Mark Shmulik. “But it appears that Meta has found their own religion on efficiency/profitability and investors now find a leaner, sharper company before them. But is it a growth company?”

He noted that while Meta’s core revenue showed progress, the company is “not quite out of the woods,” given a 4% decline on the top line relative to a year before.

The quarter brought a “sigh of relief, but we need growth to return for the story to work from here,” he continued.

Shmulik has an outperform rating on Meta’s stock, and he upped his price target to $210 from $170.