Amid another solid quarter of earnings results, Morningstar analysts have been bumping up their fair value estimates of a wide range of stocks.
The names with the largest fair value increases were information technology services firm IBM IBM and application software company SAP SAP. Across the 856 US-listed stocks covered by Morningstar, there was a 1.99% average increase in fair value estimates for the 2024 fourth-quarter earnings season, up slightly from last quarter’s 1.76%.
Morningstar Fair Value Estimate Average Change
undefined
Among the stocks we scanned for changes, 9% saw increases of 10% or more. Over the past 10 years, 8% of the group had average quarterly fair value estimate increases of 10% or more. The technology and communication services sectors saw the highest rate of increases. Roughly 18.9% of tech companies had a fair value increase of at least 10.0%, and the average increase across the sector was 5.6%. Among communications companies, 14.5% had fair value increases of at least 10.0%, and the average increase was 2.8%.
Average Fair Value Estimate Change By Sector
undefined
Here are the stocks with the largest-percentage increases in their fair value estimates:
- International Business Machines IBM: $250 from $139
- SAP SAP: $278 from $162
- Alibaba Group Holding BABA: $163 from $100
- Twilio TWLO: $120 from $76
- Vipshop Holdings VIPS: $18.20 from $12.20
- CNH Industrial CNH: $21 from $14.70
- Deere DE: $501 from $355
- Monday.com MNDY: $332 from $240
- Meta Platforms META: $770 from $560
- Akamai Technologies AKAM: $135 from $100
Here’s more of what Morningstar analysts had to say about each stock.
International Business Machines
“Narrow-moat IBM reported good fourth-quarter earnings, which surpassed both our top-line and bottom-line expectations,” says director of equity research Eric Compton. “Red Hat was a key growth driver during the quarter, reflecting robust demand for hybrid solutions. This strength was offset by a decline in consulting revenue, which continued to be impacted by stringent discretionary spending by customers. Management projected 5% year-over-year growth in constant currency and further margin expansion.”
Compton continues: “We are revisiting our expectations as we transfer coverage to a new analyst. We have raised our revenue and profitability outlook materially to reflect our increased confidence in IBM’s ability to benefit from growing artificial intelligence and digital transformation spending. The recent quarter’s performance reinforced our confidence, as the firm’s AI-related bookings grew $2 billion sequentially to $5 billion. While we anticipate tight IT spending to dampen near term results, we expect growing demand for AI deployments to drive sales for IBM’s consulting and software arms and boost long-term growth. As a result, we are raising our fair value estimate to $250 from $139 and view shares as fairly valued.”
IBM is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Take a deeper dive into Compton’s outlook for IBM.
SAP
“After a fresh look, we upgrade SAP’s moat to wide from narrow, raise our fair value estimate to EUR 265 ($278) from EUR 150 ($162) and upgrade our Capital Allocation Rating to Standard from Poor,” says senior equity analyst Rob Hales. “Our previous bearish outlook was based on SAP losing many customers as they reassess their enterprise resource planning provider when shifting to the cloud. With about 80% of SAP’s legacy on-premises customers now committed to SAP’s new ERP (S/4HANA) in some way, we think this risk has been neutralized.”
Hales continues: “We think SAP has a wide moat based on switching costs and a return on capital that should rise to the high-teens level by the end of our forecast period. ERP software is a mission-critical component for most firms as it forms the backbone of core business functions like finance, HR, and production. Considering that and SAP’s primarily large enterprise customer base, we think switching costs are extremely high.”
SAP is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
The rest of Hales’ take on SAP can be found here.
Alibaba Group Holding
Alibaba saw two fair value increases during the quarter. The latest increase—to $163 from $128—was due to faster breakeven of most segments and cloud growth, according to senior equity analyst Chelsea Tam. “We now have stronger confidence that Alibaba can turn around its loss-making businesses,” Tam says. “Amap achieved profitability in the December quarter, and Alibaba International Digital Commerce Group, or AIDC, targets profitability next fiscal year.”
The first increase—to $128 from $100—was due to higher AI adoption and capital return to shareholders, according to Tam. “Alibaba on Jan. 29 launched its self-developed model Qwen 2.5-Max, surpassing the capabilities of DeepSeek-V3, GPT-4o, and Llama-3.1405B,” Tam says. “On Feb. 3, it started offering all DeepSeek models on its cloud. The information reported on Feb. 11 that Alibaba will provide AI features in iPhones in China. We think the increasing adoption of DeepSeek and Qwen by Alibaba’s customers will raise cloud solution demand (API access, compute, storage, consulting fees, implementation, integration, and support) and improve its adjusted EBITA margin due to a higher mix of higher-margin artificial intelligence services.”
Alibaba is trading at a 15% discount to its new fair value estimate and has a Morningstar Rating of 4 stars.
Read Tam’s full take on Alibaba here.
Twilio
“No-moat Twilio continued its impressive run, ending 2024 with solid results featuring upside to our revenue estimate and profitability slightly ahead, says senior equity analyst Dan Romanoff. “We view the outlook as in line with the investor day framework prescribed in January. As such, we have more confidence in moving our DCF to more closely align with this framework, which drives our fair value estimate meaningfully higher to $120 per share, from $76. We haven’t moved our revenue forecast to the 10%-plus area, as we think margins are more manageable than the demand environment. We assume shares selling off in the after-market hours is due to a lack of even a slight guidance boost after a very aggressive move in the stock recently. Given the meaningful improvements baked into investor expectations within the stock price, our Morningstar Uncertainty Rating is High, and we would wait for a better entry point.”
Twilio is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Romanoff has more about Twilio’s stock here.
Vipshop Holdings
“In the fourth quarter of 2024, Vipshop’s revenue and non-GAAP net income declined by 9% and 6%, respectively,” Tam says. “Vipshop also guided that first-quarter 2025 year-on-year revenue will decline by 0%-5%. The revenue and non-GAAP net income exceeded our estimates by 4% and 19%, respectively, as management recruited more super VIP members, improved merchandising, exerted strong cost control, and increased the higher-margin apparel’s mix.”
Tam continues: “We raised the revenue and non-GAAP net profit forecasts from 2025-27 by 15%-47% and 11%-39%, respectively. We think the worst is over for Vipshop as the government should announce more consumption support policies during the Two Sessions, boosting Vipshop’s revenue and earnings.”
Vipshop is trading at a 13% discount to its new fair value estimate and has a Morningstar Rating of 4 stars.
Investors can find more of Tam’s take on Vipshop here.
CNH Industrial
“After taking a fresh look at this major global player in agricultural machinery and construction equipment, we’ve raised our fair value estimate to $21 per share from $14.70 to reflect our more constructive view on the company’s fast follower’ strategy behind market leader, Deere,” says equity analyst George Maglares. “We’re maintaining our narrow economic moat rating and Standard Capital Allocation Rating.”
Maglares continues: “Intangible assets and high customer switching costs give CNH a narrow economic moat. While it is unlikely to ever catch its arch-rival, the company has the right product portfolio and technology strategy as well as a dealer network and captive finance subsidiary all at sufficient scale to solidify its second-place status. In the long run, CNH will face steady, if not increasing, demand for its solutions to help feed a growing global population. Moreover, margin-rich technology add-ons to its product portfolio will continue improving CNH’s returns and through-cycle financial profile. Though the performance gap versus Deere remains wide, CNH has earned its seat at the table and will benefit from favorable, long-term dynamics in global agriculture markets.”
CNH is trading at a 39% discount to its new fair value estimate and has a Morningstar Rating of 5 stars.
Maglares has more about CNH’s stock here.
Deere
“After taking a fresh look at Deere, the global leader in agricultural machinery, we’ve raised our fair value estimate to $501 per share from $355 to reflect our more constructive view on the company’s margin-accretive technological innovations,” Maglares says. “This will likely allow the firm to achieve target through-cycle margins of 20%, having already demonstrated some 700 basis points of structural improvement versus prior cycles. Furthermore, 2025 likely represents the trough of the agriculture cycle. We’re maintaining our wide economic moat rating as well as our Exemplary Capital Allocation Rating given management’s focus on maintainably higher through-cycle returns. This is in addition to generous shareholder remuneration via its progressive dividend and significant share repurchases.”
Maglares continues: “Intangible assets and high customer switching costs give Deere a wide and enduring economic moat. Competitors are unlikely to undermine Deere’s brand equity, technology leadership, or profound advantages from its dealer network and captive finance arm. Given vastly superior margins and returns, Deere appears to have stronger competitive advantage and execution than peers.”
Deere is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Take a deeper dive into Maglares’ outlook for Deere.
Monday.com
“No-moat Monday reported robust fourth-quarter earnings results that beat our estimates and consensus,” says Compton. “The launch of the firm’s new artificial intelligence-enabled enterprise service management agent, along with solid retention metrics and enterprise customer gains, sent the stock soaring 30% after the release. We have updated our long-term estimates to better reflect demand for the firm’s AI solutions and increased cross-selling opportunities, causing us to raise our fair value estimate to $332 per share from $240.”
Compton continues: “We believe the launch of Monday Service, the firm’s new enterprise service management agent, will enable Monday to leverage data and artificial intelligence and present an integrated, viable solution that raises its long-term growth prospects. Early commentary suggests the offering is seeing the best cross-sell metrics and highest average contract value the firm has seen from a new product launch. The positive signs bode well for Monday’s future growth and overall positioning in enterprise workflows. We see the potential for Monday to hold an advantage over peers as it leverages AI native features, such as its new service module, across an integrated, multiworkflow platform.”
Monday is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Read Compton’s full take on Monday here.
Meta Platforms
Meta saw two fair value increases during the quarter. The most recent—to $770 from $590—was due to strong fourth quarter earnings, according to equity analyst Malik Ahmed Khan. “Meta’s advertising behemoth surpassed our expectations on both the top and bottom line. We were impressed by Meta’s ad impression and price-per-ad growth, with both metrics expanding in the fourth quarter. We view Meta as carefully leveraging its investments in artificial intelligence to improve both its content recommendation and ad-monetization models, with the firm’s strong ad sales supporting the argument that these investments are already bearing fruit.”
The first increase—to $590 from $560—was due to the TikTok uncertainty, which could benefit Meta’s ad sales, according to Khan. “TikTok is an incredibly popular social media platform, with more than 170 million users in the US,” says Khan. “While lower than Meta’s 70%, TikTok has a respectable 15% market share of US social media ad spending, larger than peers such as Snap SNAP, Reddit RDDT, and Pinterest PINS. We believe Meta’s Reels and YouTube’s Shorts are the most obvious beneficiaries of any user or advertiser shift away from TikTok. We saw both products gain material user engagement following the TikTok ban in India in 2020 and foresee a similar trend if TikTok is banned in the US.”
Meta is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Investors can find more of Khan’s take on Meta here.
Akamai Technologies
“Akamai’s fourth-quarter and full-year 2024 results revealed steady growth in the firm’s computing and security businesses, which now account for over two-thirds of firmwide revenue,” says equity analyst Samuel Siampaus. “Although results aligned with our expectations, after taking a fresh look at the company, we’ve upgraded our moat rating for Akamai to narrow from none. We think the firm has continued to drive value through its security and computing businesses, enhancing the value of its legacy content delivery business and ultimately increasing the stickiness of its platform. We’ve also raised our fair value estimate to $135 from $100 to account for our view of the firm’s long-term competitive position.”
Akamai is trading at a 41% discount to its new fair value estimate and has a Morningstar Rating of 5 stars.
Take a deeper dive into Siampaus’ outlook for Akamai.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk
