UBS analysts upgraded shares of JD.com (NASDAQ:JD) to Buy from Neutral on Wednesday, lowering the firm's price target on the stock by $1 to $39 per share.
The analysts said in their note to clients that while the company's business transition will take time, they believe its current valuation is attractive.
"JD is in a year of transition with a new strategy based on: 1) cultivating a vibrant third-party (3P) ecosystem by expanding long-tail SKUs; 2) building low-price mind share; and 3) streamlining its corporate structure to be more responsive to market change," the analysts explained.
"We view its business recalibration as necessary in this dynamic and competitive market, but the process is unlikely to be smooth amid peaking internet user growth, a slowing economy and rising competition."
The analysts acknowledged that while margins continue to improve, muted top-line growth and uncertainty over the business transition have hurt the shares.
Even so, while UBS sees JD potentially underperforming its peers until there is more visibility on the business transition, the investment bank views its valuation as attractive.