Tuesday, November 13, 2007

Baidu.com (NASDAQ:BIDU): Steep Correction Creates Attractive Buying Opportunity - Citigroup

- Citigroup is out with a nice call on Baidu.com (NASDAQ:BIDU) noting the stock has lost ~30% of its value in five days; sell-off looks overdone - In their experience, companies like Baidu, which delivered a "beat and raise" quarter and posted very strong fundamental metrics, are generally the first to bounce back and deliver the most alpha post corrections like the one we are currently experiencing. Because the sell-off does not appear to be based on fundamentals, it is possible that the shares could fall further - but the bottom should be getting close. While no one wants to catch a falling knife, the fundamental valuation looks highly attractive, with the company now trading at 31.6x Citi's '09E and a PEG of 1.1x. Accordingly, they encourage investors to monitor Baidu closely and to be actively taking advantage of this and perhaps further near-term weakness, to build/add to positions. Baidu remains firm's Top Pick in China Internet for 2008.

The sell-off appears to have been caused by a disappointing outlook from Cisco last week for its US enterprise business. Of course, the China Search market has little fundamental correlation with near-term outlook for US router demand.

Investors should remember that we are still pre-eCommerce in China, and as the overwhelming dominant player, Baidu is best positioned benefit from the market's growth. Reits Buy and $425 tgt.

Notablecalls: With the stock down 100+ bucks from its recent high, it sure looks like the ideal bounce candidate.

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