Alphabet's (GOOGL) Price Target Raised to $850 at Pacific Crest

Pacific Crest maintained an Overweight rating on Alphabet (NASDAQ: GOOGL) and raised its price target to $850.00 (from $820.00). Analyst Evan Wilson said the stock remains one of his favorite ideas for 2016. The report also included an analysis of Google's 'other bets', valued at $22 billion. Overall, Wilson thinks disclosure is positive and will continue to be a catalyst for the stock.

"We're publishing an analysis of Alphabet's non- Google "other bets" in anticipation of the company breaking them out during Q4 earnings. Alphabet has never disclosed the full scope and details. We've pieced together a map from public sources, with estimates for the number of employees, revenue and operating income," said Wilson. "We estimate Alphabet is losing $1.5 billion on other bets. Excluding shared sales, operations, administrative and facilities expenses (which are very difficult to allocate), we think the other bets generated $560 million in revenue and lost $1.5 billion in operating income in 2015. Including those other expenses, we estimate that losses could stretch to the low end of the $2 billion to $5 billion range that the Street currently assumes for other bets.

The analyst continued, "Many have shifted to the idea that the more Alphabet is losing on other bets, the better it is for GOOGL. This means the Google core is even more profitable and valuable than previously disclosed. After our analysis, we're not sure that the new disclosure makes core Google look much more profitable than expected. We do think the disclosure is positive because it is part of Alphabet's journey to be more shareholder friendly, which we think will continue to be a catalyst for GOOGL"

Wilson added, "Historically, we have resisted adding a separate valuation assumption for the other bets, given their speculative and loss-making condition. However, after a more formal understanding and the company's upcoming disclosure, we are applying a valuation assumption of $22 billion, or $31 per share, for the other bets and adding it to our previous valuation assessment. We are raising our target to $850 from $820, which is 19x our 2017 EPS estimate plus cash and the value of the other bets."

For an analyst ratings summary and ratings history on Google click here. For more ratings news on Google click here.

Shares of Google closed at $756.85 yesterday.

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