Meta Platforms (NASDAQ:META), formerly known as Facebook, showcased its robust financial performance, generating a staggering $40 billion in free cash flow (FCF) throughout the previous year. The company’s recent announcement of its inaugural quarterly dividend, with an annual cost of $5.1 billion, further underscores its solid financial position. Analysts are optimistic about Meta’s future, projecting higher sales figures and noting its impressive 32% FCF margin, which could potentially drive the stock’s value up by more than 18% to $556 per share.
As of Friday, Feb. 9, 2024, META stock has surged to $469 in morning trading, prompting a closer examination of its prospects.
Sufficient FCF to Cover Dividend Payouts
Meta Platforms reported a remarkable 25% year-over-year increase in Q4 revenue on Feb. 1, 2024, contributing to a 16% growth in 2023 sales, totaling $134.9 billion. This growth was attributed to the expansion of user metrics and an uptick in advertising revenue.
Of particular significance is Meta’s robust free cash flow, which soared to $11.5 billion in Q4 and $40.1 billion for the entirety of 2023. This marked a substantial 117% surge compared to the $5.3 billion generated in Q4 2022. The $40.1 billion in FCF for 2023 also represents a 117% increase over the $18.4 billion recorded in 2022.
A chart from Meta’s presentation highlights consistent quarterly FCF figures exceeding $5 billion over the last five quarters, likely influencing the decision to initiate a dividend payout. The newly announced dividend is expected to cost Meta approximately $5.1 billion annually or $1.275 quarterly per share, well within the company’s FCF capabilities.
Projections Based on FCF
The stable dividend payout and strong FCF position Meta favorably in terms of stock valuation. Analysts anticipate a sales projection of $158.22 billion in 2024 and $176.89 billion in 2025, resulting in an average estimated sales figure for the next 12 months (NTM) of $167.6 billion. Assuming a 32% FCF margin, the projected FCF for the NTM period stands at $53.6 billion, suggesting a potential one-third increase in FCF within the next 12 months.
Setting Price Targets for META Stock
Currently, META stock offers a dividend yield of 0.426%, estimated based on an annual dividend of $2.00 and a stock price of $469. Assuming the dividend accounts for only 10% of the projected NTM FCF of $53.6 billion, the market’s valuation of Meta’s FCF indicates a 4.26% FCF yield.
Dividing the NTM FCF estimate by 4.26% yields a projected market capitalization of $1,258 billion, representing a 7.3% increase over the current market cap of $1,172 billion. Furthermore, a potential adjustment to a 3.5% FCF yield could result in a market cap of $1.53 trillion, translating to a 30% increase from the current stock market value.
Analysts’ Price Targets
Several analysts forecast higher price targets for Meta. Yahoo! Finance reports an average target of $490.71 per share among 52 analysts, implying a modest gain of $20.71 or 4.4%. Anachart.com’s survey of 48 analysts reveals an even more optimistic average price target of $520.48, representing a 10.74% increase from the previous day’s close of $470 per share.
Conclusion
The analysis suggests a significant potential upside for META stock, with projections indicating a potential increase of 7.3% to 30%, averaging at about 18.7%, which could drive the stock’s value to $556 per share. Whether relying on FCF targets or analysts’ price forecasts, investors can anticipate further appreciation in Meta stock over the next 12 months.
Featured Image: Unsplash
Author Faith Yakubu 
