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Alphabet stock could rise another 40% to above $1,000

Feb 02, 2016 10:37:00 (ET)

By Jennifer Booton, MarketWatch

Alphabet surpasses Apple as world's most valuable company

Alphabet Inc.'s stock soared to an all-time high Tuesday morning, pushing Google's parent above Apple Inc. as the world's most valuable company (http://www.marketwatch.com/story/alphabet-officially-surpasses-apple-as-worlds-most-valuable-company-2016-02-02)by market capitalization -- and analysts think it will rise another 40% this year as they boom toward $1,000.

In its first earnings report in which the company separated Google core results from those of its "other bets," (http://blogs.marketwatch.com/thetell/2016/02/01/alphabet-earnings-to-break-out-non-google-results-for-first-time-live-blog/) such as Calico, driverless cars and Nest, much stronger-than-expected core results prompted several price-target increases on Alphabet's stock(GOOGL) (GOOGL).

Also Read: Why Alphabet is more valuable than Apple (http://www.marketwatch.com/story/why-alphabet-is-more-valuable-than-apple-2016-02-01)

The most bullish came from Deutsche Bank, which raised its 12-month target to $1,080 from $900. That price target implies 40% upside from Alphabet's close price on Monday.

(https://w.graphiq.com/w/aeRvCoar8dn)

"We think the current re-rating in GOOGL shares is 2/3rds of the way complete and is likely to grind to $1000+, hence remains our top pick," said Deutsche Bank analyst Ross Sandler in a note to clients.

A number of other brokerages raised their target above $1,000, including Bernstein Research ($1,050), RBC Capital Market ($1,000), and Mizuho Securities ($1,070), according to FactSet.

Also Read: Google shines bright, 'moonshots' still in the dark (http://www.marketwatch.com/story/google-shines-bright-moonshots-still-in-the-dark-2016-02-01)

Other target increase came from Susquehanna Financial, to $950 from $875; Credit Suisse, to $930 from $900; Stifel, to $930 from $900; Pacific Crest, to $910 from $850; Barclays, to $900 from $800; Goldman Sachs, to $890 from $850; Morgan Stanley, to $880; Baird, to $880 from $780; and Wedbush Securities, to $830 from $800.

All but one of those brokerages reiterated stock ratings that are the equivalent to buy. The only exception was Wedbush, which raised estimates but kept to a neutral rating.

(https://w.graphiq.com/w/bC1TY0Zch3T)

Shares of Alphabet rose more than 3% to $794 in high-volume trade Tuesday morning. Its market capitalization hit nearly $547 billion early in the session, versus Apple's $530.9 billion market cap. Apple's shares slipped 0.8% to $95.65 in recent trade.

While Alphabet separated out its experimental "moonshots" businesses for the first time since its reorganization, it was the core Google business that shined the brightest. Revenue for the division, which includes YouTube, ads, search, the cloud and Gmail, rose 18% year-over-year to $21.2 billion.

"Google's [fourth-quarter] results left little confusion around the strength of the core franchise," said Sandler. "There are few companies in global technology with $20B in quarterly revenue, consistently growing north of 20% ex-fx on top and bottom lines."

(

You can barely see Other Bets revenue in context of Google revenue. But boy can you see Other Bets losses… pic.twitter.com/6upD66B4C3

— Jan Dawson (@jandawson) February 1, 2016

)

Credit Suisse analyst Stephen Ju called the acceleration of revenue among Google's websites, driven by strong mobile search, YouTube and programmatic advertising, the "most important takeaway" in the results. Morgan Stanley's Brian Nowak said that should help the company deliver rising core margins and higher total earnings power, even as it takes riskier bets like driverless cars.

While Alphabet didn't break out quarterly revenue for those other bets, it did report a 37% year-over-year increase in revenue for the "other bets" reporting segment to $448 million. That segment's operating loss widened to $3.6 billion from $1.9 billion amid sharply higher expenses, but that was dwarfed by the Google segment's $74.5 billion in annual revenue.

"Despite the anticipation around new "Other Bets" disclosures into the quarter, continued strength in the core business stole the show," said Goldman Sachs analyst Heather Bellini.

-Jennifer Booton; 415-439-6400; [e-mail]


(END) Dow Jones Newswires

02-02-16 1037ET


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