Citi Deems Meta Stock A High-Conviction Buy As Its Strategy Remains Underappreciated

Meta Platforms Inc. received further commendation from Citi Research on Friday, as analysts included the social media company in their compilation of highest-conviction investment ideas. Citi analyst Ron Josey designated Meta, the parent company of Facebook, as his top pick within the internet sector, citing enhanced user engagement and the potential for revenue and profit advancement.

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In a statement, Josey highlighted the differentiating factors of their research, such as proprietary checks and monitoring of Reels monetization. As a result, Meta was incorporated into Citi's "focus list" of bullish stock recommendations. Josey's assessment of the advertising load on Meta's Reels platform indicates a steady increase in monetization of the content format, with positive feedback from advertisers.

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Josey's revenue projections, already positioned near the upper end of the consensus range, may ultimately prove conservative. This is due to the underappreciated product-led innovation strategy implemented by Meta, which is expected to drive accelerated revenue growth throughout 2023 and into 2024. 

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Additionally, Josey expresses optimism regarding Meta's ability to achieve margin improvement by refocusing on its core social media applications, while simultaneously investing in metaverse initiatives. 

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He anticipates that Meta's earnings will align with the higher end of market expectations, as the company has significantly reduced operational costs and implemented new efficiencies that will generate structurally improved margins alongside revenue growth.

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Despite Meta shares surging by 120% this year, Josey believes there is further potential for growth. He sets a price target of $315 for the stock, representing a 34% increase from current levels. Furthermore, Josey's "bull case" scenario suggests a target of $420 for Meta, assuming a 16% revenue growth rate in the following year. Consequently, he rates the stock as a buy.

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Citi's positive outlook on Meta coincides with its generally favorable stance on the communications services sector, as demonstrated by the sector's upgrade to overweight during the second quarter. Citi views Meta as the most advantageous player in the online advertising realm, considering its potential for revenue growth, improving profitability, and the resultant incremental margin expansion. In addition to Meta, Citi analysts also included American International Group Inc. (AIG), Tradeweb Markets Inc. (TW), and Ultragenyx Pharmaceuticals Inc. (RARE) on their "focus list" of recommended stocks last Friday.

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