Google Parent Alphabet Should Trade At A Premium Versus Peers: Analyst

BofA Securities analyst Justin Post maintained a Buy rating on Alphabet Inc GOOGL GOOG with a price target of $206.

The analyst writes that Google patent Alphabet is well positioned long term with leading AI technology to apply to search, YouTube, and Cloud businesses.

As per Post, Alphabet should also benefit from increasing mobile usage, video usage, Google Play activity, and connected device activity (including autos).

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The analyst writes that Alphabet should trade at a premium to a media peer group, given technology leadership, high margins, and strong cash flow generation for buybacks.

The price target reflects 22 times 2025 core Google GAAP EPS plus cash per share. Alphabet has traded at an average multiple of 22 times GAAP P/E over the last ten years, and Post noted that his multiple is reasonable compared to history, given expectations for double-digit revenue growth, Cloud margin expansion, and the opportunity to capitalize on strong AI assets.

Post noted a higher probability of new disclosures with a new CFO, but more likely on the December call.

The third-quarter potential positives included Search strength suggesting AI drives higher monetization, positive commentary on Al overviews driving higher usage or new advertising opportunities, YouTube benefit from political spending and brand stabilization, and Cloud strength from strong AI demand and capacity constraints at competitors.

There is potential for the company to “surprise” with further self-help cost-cutting actions after limited layoffs in 2024.

Moreover, with an attractive core valuation despite big AI assets, he noted that many concerns are already priced “in” the stock. While the analyst doesn’t anticipate significant multiple expansion given regulatory overhangs, he noted that the stock can appreciate with earnings growth.

Alphabet is scheduled to report third-quarter results on October 29 after market close. Post expects revenue of $72.7 billion versus the Street consensus of $72.8 billion and EPS of $1.86 against the Street consensus of $1.85.

The analyst projects third-quarter revenues of $49.4 billion for Search (slightly above Street at $49.1 billion). For YouTube, he projected revenue of $8.82 billion and for Cloud at $10.9 billion, both in line with Street.

Price Action: GOOGL stock is up 0.64% at $166.01 at last check Tuesday.

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