Friday, April 15, 2011

Google Target Price Lowered to $625 (Review) *Uncertainty over management & expenses* GOOG


(Updated as of April 15, 2011)

Google Stock Valuation

Google News and Fundamentals Google reported disappointing Q1 2011 earnings which are reviewed and analyzed on this blog. Current Google financial data, charts, and review is at the Google Financial Performance page, updated for the latest Q1 2011 financial results reported on April 14, 2011. A review and analysis of the Q4 2010 earnings call is posted, and the Q1 2011 earnings call review and analysis will be posted soon, at the Google Earnings Conference Call page.

GOOG Earnings per Share Earnings per share for the past 4 quarters have been $27.31. At the current, approximate GOOG stock price of $540.00 on April 15, 2011, this is a PE (ttm) of 19.77. This PE is lower than Google has traded in the past, which was in the 20-23 range.

GOOG Cash Flow per Share Cash Flow from Operations per Share for the past 4 quarters has been $35.97. At the current, approximate GOOG stock price of $540.00 on April 15, 2011, this is a cash flow multiple of 15.01, which is reasonable, but lower than previous 17+ range.

GOOG Target Price Q1 2011 financial performance did not beat Q4 2010. Google does not provide EPS guidance. Assuming Google can increase EPS by 10% in the future 12 months (4 quarters) compared to the trailing 12 months, this results in an estimated annualized EPS of $30.04 ($27.31 X 1.10). At a PE of 21, to reflect investor lowered expectations (previously used 22), this results in a stock valuation, and target, of $630.87. This is a conservative estimate of EPS growth rate and, probably, PE multiple, in our opinion. Therefore we are lowering our price target from $650.00 to $625.00 to reflect the uncertainty over the management restructure, higher operating expenses, and wait until Q2 2011 financial results either validate or refute higher expectations. Google appears to have 3 promising quarters remaining in 2011. Google is down, but not out.

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