Facebook Quiet Period Ends. Analysts Say: Meh [Updated]

The government-mandated quiet period surrounding Facebook's initial public offering has ended, meaning Wall Street investment banks that underwrote the company's IPO can issue research on the stock. And judging from the mixed reviews of analysts at firms that priced Facebook at $38 a share, Facebook shareholders may be wishing they'd stay quiet for a lot longer.

Facebook's stock fell as much as 3.5% today after research analysts began to publish reports on the stock. Typically, when the 40-day, post-IPO quiet period ends, underwriting analysts will publish reports offering a bullish view to justify the offering price they helped to establish – especially when the stock has dropped below that offering price.

After its IPO, Facebook's stock quickly fell as much as 33% below its offering price. Over the past three weeks, it rebounded to $33.10, a 13% discount on its offering price.

That put underwriting analysts in a quandary: Do they issue justifications for the original offering price that the market has resoundingly rejected? Or do they throw in the towel and admit that the stock was overpriced to begin with? Looking at today's reports, analysts seem to be split on that question.

The three top underwriters of the Facebook IPO – Morgan Stanley, JP Morgan and Goldman Sachs – all have buy recommendations on Facebook, setting price targets for the stock between $38 a share (Morgan Stanley) and $45 a share (JP Morgan) between today and the end of 2013.

Even some of the more bullish underwriters concede that Facebook will need some time to deliver on its potential. Goldman, JP Morgan and Morgan Stanley all expect Facebook to fall short of the 12 cents a share profit that other analysts have been looking for in the quarter ending June 30.

But six of the other 11 underwriters listed on Facebook's IPO prospectus gave a neutral rating on the stock, and many of their price targets are close to Facebook's current level. On Wall Street, “neutral” is often a nice way of saying “don't bother.” And those lower price targets are basically telegraphing to investors that Facebook is not expected to rise much higher than its current value in the coming months.

Four investment banks that helped to underwrite Facebook's stock – Credit Suisse, Barclays, Bank of America and Citibank – all issued neutral ratings on the shares today. And three of them expect the stock to trade between $34 and $35 a share (BofA has a more bullish $38 price target). While most of those analysts believe Facebook has long-term potential, they feel it's still expensive at its current price.

Among analysts at Wall Street firms that weren't listed as Facebook underwriters, there was a similar disagreement. Oppenheimer & Co. saw Facebook rising to $41 a share, while BMO Capital urged shareholders to sell, predicting Facebook falling back to $25 a share, citing slower growth.

Behind the disparate price targets is a debate over whether Facebook can deliver on its promise. That promise is considerable: More than 900 million active users, its deep reach into the data that describes their lives, its ability to target ads, and its focus on user experience are all unrivaled in social networking. Yet, as more users migrate to mobile devices, Facebook has been slow to monetize that transition with mobile ads. Bulls believe Facebook will succeed in mobile as it has on desktops. Bears aren't so sure.

Then there's the disagreement over valuation. When Facebook went public, it had a higher price-earnings ratio – more than 100 times its recent earnings – than 498 of the companies in the S&P 500, according to Bloomberg. As a Citigroup analyst noted in a report today, “Super-high multiples and decelerating growth don’t mix well.”

So investors looking to Wall Street analysts for investment guidance are likely to walk away even more confused. The consensus view is that Facebook is either worth buying, or it's not. It will rise as high as $45 a share, or fall as low as $25 a share.

In other words, you're just as well off flipping a coin: Heads, buy Facebook. Tails, sell Facebook. Or better yet, do your own research.