Is Google Undervalued? Analysts Weigh In

Google (NASDAQ:GOOGL)’s stock has dropped about 5% over the last 12 months due to missing earnings expectations for the last eight out of ten quarters. Investors’ concern of increased digital advertising competition from Apple Inc (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) have also hindered Google shares, in addition to the uncertainty surrounding Apple renewing its search-engine contract with Google as its default web browser on Apple IOS devices. The contract is expiring this year, and rumors have been circulating that Apple will not renew its contract with Google. This would mark the second time this happened to Google in less than a year as Mozilla Fox Fire ended Google’s tenure as its default search engine in November and replaced it with Yahoo (NASDAQ:YHOO), signing a 5-year deal.

Many had also speculated that Google could end up with over $80 billion in cash and marketable securities by the end of 2015, thus beginning a new dividend plan for investors. In response to this, Google’s CFO Patrick Pichette stated in the company’s fourth quarter 2014 conference call, “Share price does matter. It matters to our board, it matters to all of us, we are all shareholders in the company.” With that said, no new dividend plan was announced and investors fear they will not get cash back at all.
Despite this, a few analysts are still bullish on Google and believe the stock is undervalued.

On March 2nd, Bank of America/Merrill Lynch analyst Justin Post upgraded his rating on Google from Neutral to Buy and raised his price target from $580 to $650. Post noted, “Google is arguably undervalued due to Street concerns on management objectives and spending.” In regards to Google’s contract resolution with Apple, the analyst doesn’t see a big financial risk with the matter and even believes it could drive Google's stock over the next 12 months. In addition, Post stated that fund flows have started returning back to Google after underperforming Apple, Facebook, and Microsoft (NASDAQ:MSFT) which he thinks will help the stock’s P/E multiple improve.



Justin Post has rated Google 23 times since March 2009, earning a 76% success rate recommending the company and a +38.9% average return per GOOGL recommendation. Overall, the analyst has a 69% success rate recommending stocks and a +19.0% average return per recommendation.

Similarly on March 2nd, UBS analyst Eric Sheridan reiterated a Buy rating on Google and raised his price target from $630 to $670. The analyst said Google's stock is “much better positioned than many investors currently expect.” In terms of digital advertising, Sheridan thinks Google’s connection to YouTube will help the company keep up in that space. In regards to Google adopting a dividend plan, the analyst believes it is very possible the company will do so in the coming years.



Eric Sheridan has rated Google 9 times since April 2013, earning a 63% success rate recommending the internet giant and a +9.7% average return per GOOGL recommendation. The analyst currently has an overall success rate of 73% recommending stocks and a +17.1% average return per recommendation.

On the other hand, not all analysts are currently bullish on Google. According to SmarterAnalyst, Axiom analyst Victor Anthony maintained a Hold rating on Google with a $608 price target on March 2nd. Even though the analyst views “Google as one of the world’s bestin-class organizations” and was “encouraged by the resiliency of the core business in 4Q,” he is holding off on recommending the company “until [he] see[s] how management overcomes a series of headwinds.” Anthony listed the headwinds Google needs to overcome, including: “1) investments in Moonshots are pressuring operating margins; 2) European antitrust investigations; 3) lack of a meaningful social media presence, 4) rising competition for online video ad dollars; 5) lack of an effective payments solution; 7) secular pressures from vertical app search; and 8) potential loss of a search partner.”



Victor Anthony has rated Google 17 times since April 2013, earning a 60% success rate recommending the company and a +8.8% average return per GOOGL recommendation. Overall, Anthony has a 72% success rate recommending stocks and a +19.0% average return per recommendation.

On average, the top analyst consensus for Google on TipRanks is Moderate Buy.