- UBS on Friday raised its price target on Google parent Alphabet to $US1,675 from $US1,460.
- The price target implies that the stock could surge another 15% after hitting a $US1 trillion market value on Thursday.
- “We believe the current valuation does not give full credit to its scale advantages, the potential for better capital allocation and cost efficiencies, or its cash balance,” UBS analyst Eric Sheridan wrote.
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Alphabet could gain even more after hitting a record $US1 trillion market valuation on Thursday, according to UBS.
On Friday, the bank increased its price target on the Google parent company to $US1,675 from $US1,460. That’s a 15% increase from where shares ended the trading day Thursday, and would put Alphabet in the running to be the most valuable company in the US, rivaling Apple and Microsoft, both worth more than $US1 trillion currently.
UBS analyst Eric Sheridan wrote Friday that Alphabet’s risk versus reward is favourable going forward citing sustained revenue momentum, increased transparency, and exposure to key secular growth ahead. He reaffirmed his “buy” rating on the stock and updated his price target to reflect valuation on five year forward-operating estimates, according to a Friday note.
“We believe the current valuation does not give full credit to its scale advantages, the potential for better capital allocation and cost efficiencies, or its cash balance,” Sheridan wrote.
Most of Sheridan’s analysis focuses on Google Cloud, an area where Google management “will continue heavy levels of investment to maintain and build upon recent end market success,” he wrote.
Google Cloud still remains behind its main competitors, Amazon’s AWS and Microsoft’s Azure, in the public cloud space, Sheridan said. But progress has been made in the last two to three years, and the business “could achieve positive operating income in 2021E following a breakeven year in 2020E,” Sheridan wrote.
In addition, Sheridan said that the UBS model could prove conservative, as its price target ascribes little to no value to Alphabet’s non-Google segment assets, “which we feel is undervalued given the large scale opportunities for a number of businesses” such as Waymo and Verily, Sheridan wrote.
What that means for investors is that any additional disclosures from Alphabet could unlock even more value, according to the note.
Wall Street is overwhelmingly bullish on Alphabet. Analysts covering the company have a consensus price target of $US1,492.53 and 41 “buy” ratings, five “hold ratings, and zero “sell” ratings, according to Bloomberg data.