NEW YORK (TheStreet) -- Shares of 21Vianet (VNET) surged 28.61% to $19.96 on Friday to recover its major losses from earlier in the week after Morgan Stanley (MS) defended the company's core business despite fraud allegations.
The firm reiterated its "overweight" rating with a $35 price target on Thursday after the company held a conference call to respond to the claims. Morgan Stanley said 21Vianet's core business is still intact and values it at $1 billion, or $15 per ADS. The firm also sees upside as management clarifies some disputed items.
Trinity Research published a 121-page report Wednesday in which it claimed the company has committed fraud via fabricated SEC financial statements and illegal activities conducted in China. Trinity presented evidence including Chinese regulatory and State Administration for Industry and Commerce filings, photos of so-called "ghost offices" and "ghost acquisitions," original Chinese legal documents, and findings from in-person visits to all 72 of 21Vianet's data centers.
21Vianet issued the following statement early Wednesday afternoon in response to the allegations:
"21Vianet believes that the allegations made contain numerous errors, unsupported speculation and malicious interpretations of events. 21Vianet is committed to providing more detailed response to the allegations promptly and to rebutting false claims that attempt to undermine confidence in its business, financial condition and results of operations.
21Vianet remains focused on its business vision and strategy to become a leading Internet infrastructure service provider in China. 21Vianet intends to take all appropriate legal actions to defend itself against these malicious allegations and to protect the interest of its shareholders."
The webcast of the conference call is available here.
More than 9.2 million shares had changed hands as of 12:19 p.m., compared to the average volume of 1,831,140.
Separately, TheStreet Ratings team rates 21VIANET GROUP INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate 21VIANET GROUP INC (VNET) 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, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 36.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to its closing price of one year ago, VNET's share price has jumped by 95.80%, exceeding the performance of the broader market during that same time frame. Although VNET had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- 39.96% is the gross profit margin for 21VIANET GROUP INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -9.48% is in-line with the industry average.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, 21VIANET GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 45.7% when compared to the same quarter one year ago, falling from -$6.92 million to -$10.08 million.
- You can view the full analysis from the report here: VNET Ratings Report
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