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On Monday, Bernstein analysts maintained a Market Perform rating on Baidu (NASDAQ:BIDU), a $33.2 billion market cap tech giant with a steady price target of $108.00. According to InvestingPro analysis, Baidu is currently trading below its Fair Value, with a strong financial health score of "Good" and an attractive P/E ratio of 10x. The decision follows Baidu’s recent announcement of issuing $2 billion in exchangeable bonds, which are set to facilitate the sale of a significant portion of their stake in Trip.com (TCOM).
Baidu disclosed that it would receive the principal amount upfront for these zero-coupon bonds. Bondholders will have the option to exchange them for TCOM shares one year after the issuance, with the exchange possible up until the bonds’ maturity in 2032. The conversion will be based on a strike price of HK$702.13, representing approximately a 40% premium over TCOM’s closing share price last Friday.
The transaction will result in Baidu selling about 48% of its current stake in TCOM, reducing its holding to less than 4%. Bernstein analysts noted that while there isn’t sufficient evidence to suggest Baidu is shifting its focus towards capital actions, the recent developments are intriguing. They pointed out that these moves coincide with the appointment of Xiaodan Liu, a notable former investment banker, as an independent non-executive director (INED) on Baidu’s board.
The timing of these capital actions aligns with Baidu’s expectations for their artificial intelligence initiatives to start gaining traction within the year. The company has forecasted growth in AI Cloud revenue and anticipates AI Search monetization to follow later in the year.
In other recent news, Baidu has made significant financial moves, including a bond offering aimed at repaying existing debt and potentially enhancing its share repurchase program. The company announced a $2 billion exchangeable bond and a 10 billion yuan senior note offering, with plans to use the proceeds for debt repayment and capital expenditures. Citi analyst Alicia Yap maintained a Buy rating with a $139 price target, citing Baidu’s focus on artificial intelligence and cloud growth as key factors. Meanwhile, Bernstein raised its price target for Baidu stock to $108, reflecting the potential revenue increase from AI cloud services, while maintaining a Market Perform rating. The firm acknowledged challenges in Baidu’s core search business but noted the potential for AI applications to drive growth.
Benchmark analyst Fawne Jiang also reaffirmed a Buy rating with a $130 price target, highlighting Baidu’s strong AI Cloud growth and the anticipated adoption of GenAI technologies. Mizuho (NYSE:MFG) expressed confidence in Baidu’s financial prospects, raising its price target to $105 and noting a 26% year-over-year increase in cloud revenue. The firm emphasized Baidu’s strategic focus on AI and cloud services, projecting a 5% increase in FY26 Core EBITDA. These developments reflect a broader optimism among analysts regarding Baidu’s ability to navigate competitive pressures and capitalize on AI-driven opportunities.
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