Call of the week: Stifel says buy Snap, shares are set to rally

Yahoo Finance’s call of the week is a gutsy one on Snap (SNAP). Stifel surprised Wall Street by saying now is the time to bet on the beaten up social media stock. The firm upgraded Snap to a buy and raised its price target to $22, implying 40% upside potential from Thursday’s closing price.

The call comes after Snap entered new territory this week. Shares fell below their IPO price of $17 a share for the first time ever on Monday. And the stock continued its slide through Wednesday, dropping to an all-time low of $15.21 a share.

The decline in Snap’s stock price earlier this week was triggered by a downgrade from Morgan Stanley, a lead underwriter in Snap’s IPO. Morgan Stanley lowered its rating on the stock to hold, citing concern about Snap’s ability to improve its ad product and fend off competition from Facebook’s Instagram.

But Stifel disagrees with Morgan Stanley’s cautious call. In fact, the firm thinks worry surrounding Snap’s future is overblown, and instead, poses a “compelling risk/reward opportunity.” Analyst Scott Devitt wrote in a research note, “Competition from Instagram remains a chief concern for investors, though recent app download trends appear healthy in key ad markets, leading us to believe near-term risks to revenue-generating [daily active users] may be overstated.”

Wall Street will keep a close eye on Snap as the firm’s two lockup periods expire on July 31 and August 31. At that time, insiders will be able to sell the stock, which could push shares even lower, although Stifel thinks some of that fear is already priced in.

Ahead of the upcoming lockup expirations, Wall Street is mixed on Snap. According to Bloomberg, the stock has a total of 11 buys, 18 holds and 5 sell ratings.