Shares of Meta Platforms (META 0.90%) fell to a cheap valuation in 2022 and have soared almost 400% over the last two years. However, the stock is still trading at a reasonable 23 times this year's earnings estimate that could support more gains in 2025.
JMP Securities analyst Andrew Boone recently raised the firm's price target to $750, implying upside of 25% over the current $599 share price, and maintained an outperform (buy) rating on the stock. The analyst sees several reasons to be bullish on the social media leader's growth prospects.
The stock could be undervalued
Meta Platforms spent $30 billion on capital expenditures over the past year, and it will continue to increase spending on infrastructure based on the company's growing free cash flow and opportunities in artificial intelligence (AI).
Boone sees AI bringing great benefits to Meta's advertising tools. On the last earnings call, Meta noted that more than 1 million advertisers are already using its generative AI-powered tools to create over 15 million ads in October alone.
The analyst also sees AI benefiting Meta's Reality Labs division, specifically the upcoming Ray-Ban smart glasses. The Reality Labs business hasn't been profitable, reporting a large operating loss of $4.4 billion in Q3, but Boone believes the launch of the glasses later this year will boost investor confidence in the segment's long-term prospects.
One potential headwind for the stock is the possibility of lower margins and earnings growth in the near term from the planned acceleration in infrastructure expense growth. Analysts are currently expecting Meta to report 14% earnings growth for 2025, down from 21% expected for 2024, according to Yahoo! Finance.
But assuming Meta Platforms continues to deliver double-digit earnings growth over the long term, the stock offers great value, trading at just 23.5 times 2025 earnings estimates. It should deliver returns on par with the company's underlying earnings growth, which would put the shares on track to reach $750 within the next few years.
