Google is a well-oiled machine in a hot market. But is it a $650 a share machine?
"Overall, we believe Google's unique ability to cost-effectively connect people with information, products and/or services on an unprecedented scale has made it the linchpin to the entire Internet economy," wrote Cantor Fitzgerald analyst Derek Brown when he initiated coverage of Google with a $650 price target on Dec. 21.
While most other analysts would agree with Brown, they're not as bullish on the stock. The mean target price for Google's shares is a much tamer $549, according to analysts' estimates gathered by Thomson First Call. Brown admits that his target is based on projections of "slightly faster growth and incrementally higher levels of profit" than most other analysts. For example, Brown forecasts that Google will rake in earnings per share of $13.10 in 2007, a lofty goal compared to consensus estimates projecting $12.68 a share. Brown says his price target is 35 to 40 times his price to pro-forma earning-per-share projections of $18.27 a share for 2008.
Perhaps Brown's $650 price target is ahead of itself, but it's hard to ignore the fact that even while its growth is slowing, Google is still pulling in some rather impressive revenue and earnings growth — and that will most likely mean great things for investors who stay in the stock.
"We fully recognize that the party at Google has to end sometime," wrote Cantor's Brown. "Yet, we see no obvious signs that Google's business has hit the proverbial wall or that consumers and advertisers are radically shifting their behavior away from Google and toward its competitors."
I may think a $650 price target seems a little overblown, but I agree with Brown that Google does have legs — at least in 2007 and probably beyond. For investors, it still makes sense to invest in Google. One thing you won't be searching for is profits.
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