Google's Alphabet Revelation Gets More Wall Street Praise as Morgan Stanley Raises Stock to Overweight (GOOG) (GOOGL)

(Updated - August 12, 2015 9:44 AM EDT)

Wall Street continued to express optimism about Google's announcement that it plans to create a new company called Alphabet. Earlier, Google's stock was upgraded from Equalweight to Overweight with a price target of $820 at Morgan Stanley.

Analyst Brian Nowak called increased transparency from Alphabet a positive step to better understand core Google's profitability and loss-generating projects like Google X, Fiber, Calico, and Google Ventures, among others.

"We expect clearer and recurring disclosure on these projects' losses to increase accountability, sharpen long-term management focus, and ultimately lead to higher overall EBITDA and cash flow," said Nowak.

The analyst continued, "... we have seen improved disclosure lead to multiple expansion with other internet companies (up to 13-18% multiple expansion at Expedia and Amazon). We expect a similar outcome for Google as investors gain a clearer picture of core Google's strong earnings power and the overall company's long-term operating leverage and cash flow."

Morgan Stanley is also more bullish on Google's YouTube.

"We are raising our core Google Website estimates by 1% and 3.5% in 2015 and 2016, respectively, driven by continued momentum at YouTube. In all, we now see Google’s Website revenue growing 18% annually over the next 3 years, roughly consistent with the past 3 years. We are also adding more precision to our TAC, cost of revenue, and opex modeling, which when combined with higher YouTube revenue leads to 7% higher company-wide 2016e EPS. Further, given the improved disclosure, accountability, and (we expect) increased long-term capital discipline, we are raising our long-term (2018 and beyond) company-wide EBITDA margins by 300bp+, as we previously expected margins to compress over the long term," said Nowak.

Morgan Stanley has a $980 bull case target on Google (NASDAQ: GOOGL) (NASDAQ: GOOG), a $820 base case, and a $605 bear case.

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 $690.30 yesterday.

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