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Why Facebook Inc. (FB) Is Up Today (Update 1)

*Updated from 4:04 p.m. Eastern with closing price, price change and volume data.

NEW YORK (TheStreet) -- Facebook Inc. (FB - Get Report) closed out the trading day Monday at a price of $57.18 a share, a $2.62 or 4.81% increase from its previous close of $54.56. The stock traded at a volume of 66.59 million compared to its average volume of 75.32 million.

Twitter (TWTR - Get Report), on the other hand, ended the day at $66.28 a share, down $2.72 or 3.94% from its previous close of $69. It traded at a volume of 25.9 million compared to its average volume of 23.28 million. 

Facebook climbed steadily through the trading session after SunTrust analyst Robert Peck reinforced the stock's "buy" rating and raised its 2014 target price to $65 from $55.  

Additionally, Peck amended Facebook's fourth-quarter earnings estimate by raising its expected revenue to $2.37 billion from $2.29 billion. He based his positive stance on multiple factors, including integration of mobile advertisements, better quality advertisements on the site and the monetization of Instagram.

Recent reports indicated that teenagers and younger people are moving away from Facebook because it's no longer "cool" as parents and older relatives have populated the site. But Peck insisted that Facebook would not go the way of MySpace because Google (GOOG) and Amazon (AMZN) are not necessarily "cool" anymore, but teenagers still use those sites because of their convenience and utility.

He added that many users share major life events on Facebook, which creates a sense of permanence. As long as Facebook continues to innovate, he reasoned, young people will continue to use it.

Facebook also announced Monday that it would report its fourth-quarter earnings after the market closes on Wednesday, Jan. 29.

TheStreet Ratings team rates Facebook as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate FACEBOOK INC (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FB's very impressive revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues leaped by 59.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 10.37, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 950.00% and other important driving factors, this stock has surged by 95.39% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • When compared to other companies in the Internet Software & Services industry and the overall market, FACEBOOK INC's return on equity is below that of both the industry average and the S&P 500.

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