By Senad Karaahmetovic
Despite the fact that Evercore ISI analysts lowered estimates and the price target on Alphabet (NASDAQ:GOOGL), they still believe the Outperform-rated stock should re-rate higher from current levels.
They slashed the price target on Google-parent's stock to $120 from the prior $130 per share, reflecting cuts to estimates. The analysts made changes to Evercore's GOOGL model after incorporating recent "soft" data points on Advertising, Retail, and Cloud Computing.
"QTD Search trend data from Skai suggests that the Search deceleration Google disclosed in the September Quarter is continuing into Q4," they wrote to clients in a note.
Moreover, Evercore's recent survey on Retail suggests that discretionary products "remain slow relative to staples," in addition to the U.S. November Retail Sales results that showed "clear softness in discretionary categories, such as Electronics, Home Furnishings, and General Merchandise – categories that are material to Online Retail."
Still, the analysts continue to see a lot of value in Google stock, adding that shares are still a "Buffet(t) buy."
"We continue to view GOOGL as highly attractive for long-term investors as a DHQ (Dislocated High Quality) stock."
The analysts see three key "Value Unlocks," namely:
- One day converting its $3 billion in annual Cloud Operating Losses into profits;
- Potentially removing its $6B in annual Other Bets Operating Losses off its balance sheet;
- More aggressive capital allocation.
"For those investors who utilize 2-3 year time horizons and are looking to take advantage of the recent dislocation in high quality Net stocks, we highly recommend GOOGL. While the company will be negatively impacted by the probable '23 Recession and likely requires Street estimates cuts on both the top and bottom line, in part due to insufficient cost actions to date, GOOGL remains arguably one of the highest quality assets we cover in terms of Revenue and Profit outlooks," they concluded.
GOOGL stock price closed at $89.02 yesterday, down 38.5% year-to-date (YTD).