Google parent Alphabet has a $115 billion pile of cash that could be used to boost its stock, analyst says

Justin Sullivan/Getty ImagesGoogle CEO Sundar Pichai delivers the keynote address at the Google I/O 2017 Conference at Shoreline Amphitheater on May 17, 2017 in Mountain View, California.
  • Google parent company Alphabet has $US115 billion net cash on its balance sheet as of the third quarter of 2018, by Jefferies calculation.
  • With sufficient cash, Alphabet will likely continue to aggressively buy back shares, Jefferies analyst Brent Thill said.
  • The tech giant launched its first formal share buyback program in October 2015 and has since repurchased $US17 billion worth of stock.
  • Watch Alphabet trade live.

Google parent company Alphabet has been a cash-generating machine over the past few years and can use its stash to boost its stock, Jefferies says.

“Despite often heavy investments in many initiatives, some with very long horizons, Google’s net cash balance (including investments, less debt) has grown massively,” said Jefferies analyst Brent Thill in a note distributed Tuesday.

“In the last 10 years (2008 to Q3 of 2018), Google added ~$US100 billion to its coffers – from $US16 billion in ’08 to $US115 billion in 3Q18.”

By Thill’s calculation, Alphabet, which became Google’s parent company after a 2015 reorganization, generated $US135 billion in operating cash flow from 2015 to the third quarter of 2018. That’s 85% more than the operating cash in the prior 4-year period. Despite the company’s heavy cash spend in capital expenditure ($US51 billion), share buybacks ($US17 billion), and mergers and acquisitions ($US3 billion), it still had $US115 billion net cash on its balance sheet as of third quarter of 2018.

Alphabet cashJefferies

With sufficient cash, the tech giant will likely continue to aggressively buy back shares, according to Thill.

Alphabet launched its first formal share buyback program in October 2015, snapping up $US5 billion of stock. Since then, the company has repurchased $US17 billion worth of shares, according to Jefferies. Partly thanks to the monster buybacks that cut the company’s total share count and boosted its per-share earnings, Alphabet’s A (ex Google) shares have surged more than 60% over the past three and a half years.

“We believe GOOGL could soon announce a sharply higher stock buyback authorization of $US12-15 billion – up from $US8.6 billion in Jan. ’18,” said Thill. “We expect buybacks to remain elevated as google stock performance has been lacklustre in 2018 (-1%) and valuation is very reasonable.”

He added that the capital expenditure needs for Alphabet remain abundant and that it could start spending more cash in M&A.

Thill has a “buy” rating and $US1,450 price target – 34% above where shares were trading Wednesday.

Google was down 8% over the past year.

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