Goldman Sachs Sees 31% Upside in Google, Stock Upgraded and Added to Conviction Buy List (GOOG) (GOOGL)

(Updated - August 26, 2015 8:42 AM EDT)

Goldman Sachs upgraded Google (NASDAQ: GOOG) (NASDAQ: GOOGL) from Neutral and added the stock to its Conviction Buy List. Its price target was raised $800, suggesting potential return of 31%.

Analyst Heather Bellini said her upgrade thesis was based on her view that Google is in the early stages of a multi-year cycle to expand margins. She also pointed to mobile search and YouTube momentum.

"We believe Google is in the early stages of a multi-year cycle to expand margins, which will drive earnings outperformance and multiple expansion," the analyst explained in a research note to clients. "Google is implementing greater transparency, and we believe the management team is signaling a greater focus on cost control given recent earnings call commentary and the new operating structure with Alphabet."

Goldman Sachs conducted field checks with marketing executives, and the results made Bellini more positive on accelerating monetization potential for mobile search and YouTube.

"We interviewed 20 marketing executives at Fortune 1000 companies and found favorable results for Google, alleviating some of our concerns in the emerging areas of mobile search and YouTube. Google was cited as the vendor most likely to see the greatest increase in spend over the next three years, with mobile search and video advertising highlighted as key areas of growth. For mobile advertising, Google Search emerged as the ad format with the greatest ROI, ahead of Facebook. While we believe the shift of TV advertising budgets moving to video may take longer than many in the market anticipate, our checks ranked YouTube as the best online substitute for TV advertising dollars," continued the analyst.

Bellini said she expects execution on the margins, greater detail on the CFO’s CY16 initiatives, and new financial disclosures to be announced with 4Q15 earnings. These could be drivers of the stock over the next few quarters, with initiatives bearing fruit in 2016 and beyond.

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 $582.06 yesterday.

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