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Why are analysts upping Alphabet share price targets?

Analysts at Zacks are backing Alphabet’s [GOOGL] share price. The investment website upped its rating on Alphabet to Strong Buy in the wake of a strong earnings report. Helping the investment case was the announcement that AI spin-off DeepMind had also managed to turn a profit.

Alphabet’s share price has seen plenty of upside in 2021, but analysts at Zacks and elsewhere think there are more gains left in the stock.

 

 

 

 

Why Zacks upgraded Alphabet’s share price to ‘Strong Buy’

The biggest driver behind the decision to back Alphabet’s share price were earnings forecasts being revised upwards following the strong results. For the full year, Alphabet is forecast to earn $106.91 a share, up 82% year-on-year. In the past three months, analysts have been raising their earnings estimates, with the Zacks Consensus Estimate up 5% in that time.

“For Alphabet, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company's underlying business. And investors' appreciation of this improving business trend should push the stock higher,” the team at Zacks wrote.

“ For Alphabet, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company's underlying business. And investors' appreciation of this improving business trend should push the stock higher” - analysts at Zacks

 

What’s happening with Alphabet’s share price

Alphabet’s share price has gained almost 8% since announcing third quarter numbers on 26 October. And with the exception of a slump between September and the middle of October, it’s been almost one way traffic for Alphabet’s share price. The stock is now up more than 70% for the year, trouncing the strong gains made by Facebook and the Nasdaq.

As Alphabet’s share price trades near its all-time high, the natural question is whether there’s more upside left in the stock.

 

Analysts’ price targets up on Alphabet’s share price

Zacks isn’t the only one keen on Alphabet’s share price. In October both Oppenheimer and Raymond James maintained their Outperform rating on the stock. Oppenheimer moved their price target from $3,000 to $3,500, while Raymond James upped its target from $3,200 to $3,400 - a 14% upside on Tuesday’s close.

The investment case for Alphabet is well documented. It’s one of the biggest advertising platforms on the planet, after all. More than anything, Zacks’ rating upgrade simply underlines the investment case.

According to data from Yahoo Finance, Alphabet’s full year results have 31 revisions up in the last 30 days backing up the argument made by Zacks.

70%

Alphabet share price increase on the year

 

Then there’s the third quarter results that topped Wall Street expectations. For the quarter, earnings came in at $27.99 a share versus an expected $23.48 a share. Revenue was $65.12bn, up from $63.34bn.

Google’s advertising revenue came in at $53.13bn, up 43% from $37.1bn in the same period last year. YouTube advertising revenue rose to $7.21 billion, up from $5.04 billion a year ago. The double digit growth in advertising sales is likely down to increased search traffic, possibly due to an increase in travel post-pandemic. 

Google’s AI offshoot DeepMind announced that they are making a profit for the first time. The firm announced a profit of £43.8m in 2020, reversing previous years losses which ran into the hundreds of millions. In a filing with Companies House in the UK, revenue tripled year-on-year, going from £265.5 million in 2019 to £826.2 million in 2020.

DeepMind primarily sells its products to companies owned by Alphabet - it hasn’t announced deals with anyone else, and doesn’t sell directly to consumers. The technology is used by Google, YouTube and X - Alphabet’s self-described ‘moonshot factory’.

Among analysts tracking Alphabet’s share price on Yahoo Finance, Alphabet’s share price has an average $3,279.44 price target - hitting this would see a 10% upside on Tuesday’s close.

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