Shares of PDD Holdings, which operates e-commerce websites Pinduoduo in China and Temu internationally, got a boost in Monday trading following an upgrade from Jefferies. Separately, Goldman Sachs downgraded its outlook for PDD stock Monday.
On the stock market today, PDD is up 3% at 113.62 in recent action. PDD shares surged nearly 80% in 2023 as Temu became a viral shopping hit in the U.S. and elsewhere. But PDD stock has traded sluggishly of late, with shares entering trading Monday down nearly 25% from the start of the year.
The slide has been driven in part by concerns about regulatory risk for Temu, including increased scrutiny in the U.S. But in a Monday note to clients, Jefferies analyst Thomas Chong said "geopolitical risks" are now priced in at PDD Holdings' current value.
Chong added that "Temu's market share gain story in domestic and overseas markets is intact." The firm projects that PDD's fourth-quarter earnings report due later this month will show a 101% year-over-year increase in sales, to 80 billion yuan ($11.14 billion).
Jefferies upped its rating on PDD stock to buy from a neutral hold rating with the report. The firm also upped its price target for PDD stock to 157, from 117. That implies upside of about 42% from the stock's closing price on Friday.
Goldman Sachs Downgrades PDD
But other Wall Street analysts took a differing view. Goldman Sachs analysts downgraded PDD in a client note on Monday to neutral from buy. The group of analysts led by Ronald Keung also lowered Goldman's price target for shares of PDD to 136 from 196.
Goldman is reassessing its risk-reward analysis for PDD based on a "rapidly shifting policy landscape around cross-border businesses" and increasing competition in PDD's domestic market, Keung wrote.
Goldman Sachs cited a bill expected to receive a vote in the U.S. House of Representatives that would require TikTok's Chinese parent company to divest from the U.S. operation, or risk a ban. That could raise future issues for PDD if "any bills target other foreign apps," the Goldman report said. Also, the report noted that some U.S. lawmakers have called for changes to the U.S. de minimis exception, which allows some imports to avoid tariffs if they are valued under $800.
While not taking a view on how either policy could affect PDD or Temu, the Goldman analysts said investor's valuation of Temu could be suppressed until there is "further policy clarity from key countries."
In China, PDD is facing stepped-up competition from e-commerce giant Alibaba. Alibaba's management recently said its priority is reigniting sales volume growth, the Goldman report noted.
Meanwhile, PDD Holdings has not yet announced an exact date for its earnings. Analysts expect the report sometime this month, according to FactSet. With the recent slump, PDD stock holds an IBD Composite rating of 77 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
