In the run-up to Baidu's (BIDU -1.73%) first-quarter results, scheduled to be published on Thursday, May 16, several analysts have tweaked their takes on the Chinese tech and internet giant. One who shaved $10 per share off his price target is nevertheless maintaining his bullish outlook. Here's why he thinks the company still has double-digit price-appreciation potential.
Growth concerns
The pundit in question is Mizuho's James Lee. Less than a week before that earnings date, Lee reduced his fair value assessment of Baidu stock to $130 per share. Previously, he had pegged it as being worth $140 apiece. That cut wasn't drastic enough to change his recommendation, which remains a buy.
In his latest Baidu research note, Lee expressed concern that the company's advertising revenue was slowing, a key reason for his price-target cut. As with many other analysts evaluating Chinese stocks, he also believes the sputtering domestic economy will affect Baidu's performance. Yet he's encouraged by the company's efforts in the cloud sphere, where he's estimating that growth will land at around 9% year over year for the quarter.
The Chinese tech behemoth is also very active in harnessing generative artificial intelligence (AI) technology, which he said is one of its major areas of investment these days.
High margins, but low confidence in the domestic economy
Baidu has historically been a high-margin business, thanks to its emphasis on internet search -- a very lucrative activity for the top players in that game. I can't imagine it'll ever suffer a bottom-line crisis or fail to book impressive profits.
The problem, however, is growth. Until the Chinese economy recovers to a meaningful degree or AI starts producing decent revenue, I don't feel this stock is a compelling buy at the current price.
