Photograph by Robyn Beck/AFP via Getty Images
stock continues to rebound, partly as a result of strong digital ad sales. Stifel analyst
Scott Devitt
upgraded the stock Tuesday and raised his target for the price.
The search giant is well positioned, Devitt wrote, because it is set to collect more advertising dollars as several sectors—travel and automotive, among others—regain ground lost to lockdowns prompted by the Covid-19 pandemic. At the same time, Devitt said, the pandemic has pushed more activity online, a shift he doesn’t expect to change as the world recovers.
Devitt described Alphabet stock’s (ticker: GOOGL) valuation as “reasonable” compared with some of the other tech companies he covers. He raised his rating on the shares to a Buy from a Hold, and set a $2,350 target price, up from $2,025. Shares of Alphabet gained 0.2% to $2050.37 in afternoon trading Monday.
Alphabet stock has advanced 78% in the past year, while the
index gained 54%.
The analyst said his team observed the trend toward digitization across businesses of all sizes. Advertising budgets, he reasons, will have a greater digital focus, avoiding harder-to-track mediums such as traditional television in favor of online ads such as the search and display units Google sells.
“We view this flow of ad dollars as unlikely to reverse,” Devitt wrote. He noted that revenue from Google Properties, a category that includes income from the Google search tool and third-party websites that use it, grew 22% in the fourth quarter. That was the highest in two years, and came even though the business was 60% larger than it was the last time revenue rose that fast.
Other aspects of Alphabet work in its favor as well, Devitt wrote. The company operates a large number of units that don’t generate a significant amount of sales, including Waymo, its effort to develop technology for self-driving cars, he said. Waymo and the company’s other bets could be moneymakers in the future.
The analyst also said he likes that Alphabet now discloses revenues and profits for its cloud-computing business, a shift that gives investors more clarity about its growth. Showing investors these numbers also suggests there is more good news ahead.
Of the analysts that cover Alphabet, 40 rate the stock a Buy, and one has a Hold rating. The average target price is $2,422.17, which implies a potential gain of 18.5%. Analysts expect Alphabet to report first-quarter adjusted earnings of $18.20 a share with sales of $42.13 billion.
Write to Max A. Cherney at max.cherney@barrons.com
