Baidu, Inc. BIDU recently announced a public offering of notes aggregating $1.5 billion. These notes have been issued in two tranches of different amounts, with varying coupon rates and maturities.
The first tranche of $1 billion carries an interest rate of 3.875% and is due in 2023 while the second tranche of $500 million, which has an interest rate of 4.375%, is due in 2028.
The company stated that the transaction proceeds will be used to repay existing debt and for general corporate purposes.
Notably, the stock has outperformed the industry it belongs to on a 12-month basis. The company’s shares have gained 39.7% compared with the industry’s growth of 11.1%.
Baidu’s Cash Position
At the end of fourth-quarter 2017, cash, cash equivalents and short-term investments were RMB100.5 billion ($15.44 billion). Net operating cash inflow was RMB 10.0 billion ($1.53 billion) and capital expenditures were RMB 1.2 billion ($183 million).
We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities, further improving its growth prospects. The senior notes’ offering will bring down the company’s cost of capital, in our view, thus strengthening its balance sheet and supporting growth.
Bottom Line
Baidu provides Internet search services in China. It also offers a Chinese language search platform for businesses to reach their customers.
Baidu’s increasing presence in the autonomous driving space is helping inimprovingits competitive position. Just recently, the company got the long-awaited go-ahead to conduct open-road tests for its autonomous driving vehicles in designated areas in Beijing. This makes Baidu the first company to receive licenses for conducting road tests in Beijing, which is a big positive.
Some of the current buoyancy surrounding the shares is related to the company’s dominance in the mobile search market andonline video as well asits consistent product development efforts. We believe that it has significant growth potential in the mobile market over the long term.
However, higher promotional expenses, heavy spending on new growth areas and increasing competition in its own search platform poseas concerns.
Zacks Rank & Stocks to Consider
Baidu carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the technology sector are Teradyne TER, PetMed Express PETS and Brady Corporation BRC. While Teradyne sports a Zacks Rank #1 (Strong Buy), Brady Corporation and PetMed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings per share growth rate for Teradyne, PetMed and Brady Corporation is projected to be 14%, 10% and 7.5%, respectively.
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