Meta Platforms Surges Past S&P 500 with 1.23% Gain: Analysts Expect 12.02% YoY Earnings Growth in Q2 Earnings Report

Meta Platforms (META) closed at $712.97, a +1.23% gain, outperforming the S&P 500's +0.14% rise and the Dow's -0.04% decline. Analysts expect META's Q2 earnings to be $5.78 per share, up 12.02% YoY, and revenue of $44.69 billion, up 14.39% YoY. The Zacks Consensus Estimates forecast $25.48 per share earnings and $186.98 billion revenue for the year, with a Zacks Rank of #3 (Hold). The stock has a Forward P/E ratio of 27.64, a discount compared to its industry average, and a PEG ratio of 1.72.

Meta Platforms (META) is set to release its second-quarter earnings report on Wednesday, July 30, following a strong start to the year. The stock closed at $712.97 on July 2, marking a +1.23% gain, outperforming the S&P 500's +0.14% rise and the Dow's -0.04% decline. Analysts expect earnings to be $5.78 per share, up 12.02% year-over-year (YoY), and revenue of $44.69 billion, up 14.39% YoY [1].

Key Morningstar Metrics for Meta Platforms
- Fair Value Estimate: $770.00
- Morningstar Rating: ★★★
- Economic Moat: Wide
- Morningstar Uncertainty Rating: High

What to Watch for in Meta’s Q2 Earnings
1. AI and Advertising: Morningstar analysts are closely monitoring Meta’s AI investments and their impact on its core DigAds business. They expect continued growth in time spent and monetization, driven by AI investments. The Advantage+ tool, which automates ad-buying/targeting, is a particular focus [1].

2. Continued Shift Toward AI Talent: Meta’s significant spending on AI talent has raised eyebrows, but Morningstar cautions against early judgment. The firm’s AI spending is expected to be in the hundreds of billions over the next decade, and having the right talent is crucial for managing this investment [1].

3. Future of Capex: KeyBanc has raised its price target for META to $800, up from $655, citing strong revenue projections. However, they note potential hikes in capital and operating expenses due to AI investments, which are manageable if effectively communicated by management [2].

Financial Strength and Outlook
Meta’s financial position is robust, with $78 billion in cash and cash equivalents, offsetting its $29 billion debt balance. The advertising business remains a cash-generating machine, churning out tens of billions in free cash flow annually. Morningstar forecasts sales growing at a 12% compound annual growth rate (CAGR) for the next five years, driven by an increase in average revenue per user and user growth [1].

Risk and Uncertainty
Meta faces high uncertainty, particularly due to its investments in unprofitable ventures like generative AI and Reality Labs. There is also the risk of antitrust concerns and potential regulatory actions, but Meta’s scale and intangible assets suggest it will maintain its dominance in the social media application space [1].

Analyst Consensus
The average target price for META is $735.09, with a high estimate of $935.00 and a low estimate of $525.00. The average brokerage recommendation is "Outperform," indicating positive sentiment [2].

Conclusion
Meta Platforms is expected to deliver strong Q2 earnings, driven by its AI investments and robust advertising business. While there are risks and uncertainties, the company’s financial strength and market position suggest a positive outlook. Investors should closely follow the earnings report and any updates on the company’s AI initiatives and regulatory environment.

References
[1] https://www.morningstar.com/stocks/going-into-earnings-is-meta-stock-buy-sell-or-fairly-valued-7
[2] https://www.gurufocus.com/news/2983401/keybanc-boosts-meta-platforms-meta-price-target-amid-revenue-projections-meta-stock-news