Meta's (META) supersized layoffs unveiled on Wednesday could serve up a major profit tailwind.
"We believe Meta's decision to lower the midpoint of FY23 total expense and capex guides by $1.5 billion and $1 billion, respectively, should provide a minimum 8% boost to FY23 EPS [earnings per share]," Jefferies Tech Analyst Brent Thill wrote in a note to clients.
Meta said Wednesday it will slash 13% of its workforce, more than 11,000 employees, as it looks to redirect resources to Mark Zuckerberg's metaverse project and appease angry shareholders.
"I want to take accountability for these decisions and for how we got here," Zuckerberg said in a message to employees. "I know this is tough for everyone, and I’m especially sorry to those impacted. I view layoffs as a last resort, so we decided to rein in other sources of cost before letting teammates go. Overall, this will add up to a meaningful cultural shift in how we operate."
Meta stock popped on hopes of a profit reacceleration in 2023, paring back the year-to-date decline to 69%. The stock was the top trending ticker on the Yahoo Finance platform until the early afternoon on Wednesday.
Jefferies' Thill thinks Meta's new cost cuts will support a higher stock price.
"Given Meta's typical pattern of growing expenses below the low-end of guidance, we would not be surprised to see additional EPS upside ahead," Thill said. "We expect the expense rationalization should support Meta stock trading at just 13x FY23 EPS (vs. 11x trough). Our $155 PT implies 18x our raised '23 EPS."
The analyst maintained a Buy rating on Meta stock with a $155 price target, which assumes a 52% upside from current levels.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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