Google's (GOOG) Price Target Raised to $840 at Deutsche Bank
Deutsche Bank maintained a Buy rating on Google (NASDAQ: GOOG) and raised its price target to $840.00 (from $780.00). Analyst Ross Sandler thinks Google is just hitting its stride.
"Google has been our top pick in 2015 owing to: 1) its discounted valuation vs. peers, 2) prevailing negative sentiment, 3) our belief that innovation is alive and well, and that Google management cares about its stock price, and 4) these management change periods are historically very good signals toward unlocking shareholder value. These latter two factors are becoming clearer with two significant events playing out this year: A) operating margin turning from imploding to now up Y/Y, and B) the newly announced push toward cleaner financial disclosure and new operating structure. It’s hard for internet shareholders not to analogize this to AMZN and EXPE's recent moves, which drove the multiple up ~35% and 14% respectively. In summary, the GOOG story is just starting to hit its stride, there is significant upside from current levels and we want to be there for the whole ride," said Sandler.
"We estimate Core Businesses (Search, YouTube and Apps) at $59B in revenue in 2015, growing 14% (+21% ex-FX). This would put the Emerging Businesses segment at $763m (Figure 1). If we were to assign a 55% EBITDA margin to Core (assuming near 70% for search, the remaining below the average), that business would generate $38B in 2016 EBITDA and likely fetch at 15x multiple once investors see the stronger financial profile. Emerging contains many loss making businesses and we believe EBITDA loss could be $3B in 2016," continued the analyst.
Sandler added, "We had stated following last quarter's break-out that 22x forward EPS was likely, as that corresponds to the 2013 peak multiple, at a time when the company was still imploding its margin. Now that margins have turned and we are getting new disclosure, we expect shares to trade to 25x consolidated forward EPS rather quickly, and potentially take that out on the new disclosures, if AMZN/EXPE we use as proxies."
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Shares of Google closed at $633.73 yesterday.