Google Bears Growl New Tune

Google's (GOOG Quote) sharp drop has some bears coming out of hibernation.

Analysts Scott Devitt of Stifel Nicolaus and Scott Kessler of Standard & Poor's, who stunned investors last month when they slapped sell ratings on the beloved search engine company, are getting closer to actually encouraging investors to buy the stock, now that it's down sharply since last week's earnings setback.

Google gave ground again this week, hitting $355 early Friday, down from last Friday's close of $381 and the company's Jan. 31 pre-earnings release level of $432. In light of the selloff, which has knocked 17% off the stock in just eight trading days, both analysts changed their ratings from sell to hold.

That's not to say that either analyst is now bowled over by the buying opportunity offered by the stock, which even now is up more than 300% on its August 2004 initial public offering price.

"At current valuations and with a view toward the long-term, we prefer Yahoo! (YHOO Quote) shares, given that Yahoo!'s enterprise value is approximately 36% that of Google," Devitt says in a Feb. 6 note. He recommends buying Google shares at $314.

Kessler weighed in a day later, saying that he thought Google shares were "reasonably valued" since they were trading below his 12-month target price of $390.

Devitt and Kessler are still in the minority of Wall Street analysts, most of whom considered Google shares a buy before earnings were released on Jan. 31 and still urge investors to buy the shares. Their average target price is $490.50, according to data from Bloomberg. The shares traded up $1.27 at midafternoon Friday to $360.04.

Google continues to baffle even the most seasoned investors. The company provides no earnings guidance and is parsimonious in what information it does provide. Until now, analysts have underestimated Google's profit growth, but during the fourth quarter they overestimated it.

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