BofA Analyst Positive on Internet and Mobile Trends

Bank of America Merrill Lynch is out with a preview of its third-quarter Internet expectations this morning, and it is raising some price targets on key companies. Bank of America said that large caps are up 21% and tracking above 2013 estimate revisions and the firm thinks that stocks are discounting strong third-quarter results. In short, Bank of America is saying that these companies generally need to beat earnings expectations to sustain their positive momentum.

• eHealth Inc. (NASDAQ: EHTH) raised to $22 from $19
• Expedia Inc. (NASDAQ: EXPE) raised to $62 from $58
• Google Inc. (NASDAQ: GOOG) raised to $790 from $740
• LinkedIn Corp. (NYSE: LNKD) raised to $130 from $120
• Priceline.com Inc. (NASDAQ: PCLN) raised to $650 from $615

Bank of America remains more positive in large caps over small caps, and it is reiterating its preference in eCommerce marketplaces like Amazon.com Inc. (NASDAQ: AMZN) and eBay Inc. (NASDAQ: EBAY) over the media subsector on this theme. Bank of America is accelerating growth estimates for those two companies.

U.S. eCommerce checks and comScore data have been relatively stable and exchange rates have trended positively since July, but some checks have suggested some deceleration in the third quarter. Travel data trended positively in August but slipped in September. It is important to note that the second and third quarters are the toughest revenue growth comparable periods of the year for many companies.

What is interesting is that there are some pans in here as well. Bank of America is least constructive on third-quarter results for Bankrate Inc. (NYSE: RATE), Zynga Inc. (NASDAQ: ZNGA) and OpenTable Inc. (NASDAQ: OPEN). Groupon Inc. (NASDAQ: GRPN) also was noted cautiously. Bank of America noted:

• Bankrate’s credit card business is still seeing spending pressure from a few clients.
• Zynga’s DAUs remain under pressure and the company could see pressure on Q4 revenue.
• OpenTable has had relatively in-line restaurant counts and it could be too early to expect a benefit from new CTO initiatives on seats filled.

Facebook Inc. (NASDAQ: FB) was highlighted as a most interesting fourth-quarter stock, and Bank of America expects high volatility. It noted:

Data points in the quarter are mixed, PC usage seems to be under pressure while mobile is very strong, and given FB’s rapidly evolving ad model there is limited confidence in results. Also, lock up expirations on 10/29 and 11/14 add to near-term trading uncertainty. Assuming results are in-line or ahead, we would expect solid momentum for the stock in December as investors position for 2013, if results are weak, lock-ups may exacerbate the selling pressure.

JON C. OGG