Alphabet Could Scale to Fresh Record High on Upbeat Q2 Earnings; Target Price $3,000

The parent of Google and the world’s largest search engine that dominates internet search activity globally, Alphabet, is expected to report its second-quarter earnings of $19.33 per share, which represents year-over-year growth of about 90% from $10.13 per share seen in the same quarter a year ago.

The Mountain View, California-based internet giant would post revenue growth of more than 45% to around $56.16 billion. It is worth noting that the company, on average, has delivered an earnings surprise of over 43% in the last four quarters.

Alphabet’s better-than-expected results, which will be announced on Tuesday, July 27, would help the stock hit new all-time highs. Alphabet shares surged more than 50% so far this year. On Friday, the stock closed at a fresh record high at $2,660.30, up 3.57%.

Analyst Comments

“Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow. We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in the search market. We foresee YouTube contributing more to the firm’s top and bottom lines, and we view investments of some of that cash in moonshots as attractive. Whether they will generate positive returns remains to be seen, but they do present significant upside,” noted Ali Mogharabi, Senior Equity Analyst at Morningstar.

“Our fair value estimate is $2,925 per share, equivalent to a 2021 enterprise value/EBITDA ratio of 21. We expect revenue growth to accelerate in 2021 as the economy recovers from the COVID-19 pandemic, helped by greater revenue contribution from YouTube and cloud and the acquisition of Fitbit. While new offerings will pressure gross margin, we look for operating leverage improvement during the next five years. Our model represents a five-year compound annual growth rate of nearly 19% for total revenue and a five-year average operating margin of 26%.”

Alphabet Stock Price Forecast

Eleven analysts who offered stock ratings for Alphabet in the last three months forecast the average price in 12 months of $2,743.00 with a high forecast of $2,900.00 and a low forecast of $2,510.00. The average price target represents a -0.48% change from the last price of $2,756.32. All of those 11 analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $2,575 with a high of $3,060 under a bull scenario and $1,800 under the worst-case scenario. The firm gave an “Overweight” rating on the internet giant’s stock.

“Google Websites growth is likely to rebound in ’21 as we believe there are several underappreciated products driven by mobile search, strong YouTube contribution, and continued innovation, such as Maps monetization. Continued expense discipline leads to operating leverage and upward revisions on EPS estimates,” noted Brian Nowak, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Alphabet had its price objective hoisted by stock analysts at Credit Suisse to $3,350 from $2,755. The brokerage currently has an “outperform” rating on the information services provider’s stock.

Barclays boosted their target price to $3,000 from $2,500 and gave the stock an “overweight” rating. Susquehanna Bancshares lifted their price target to $3,100 from $3,000 and gave the stock a “positive” rating.

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