Two Abandon Google Bandwagon

Sizzling Google(GOOG Quote) is getting too hot for some analysts to handle.

Stifel Nicolaus analyst Scott Devitt and Scott Kessler of Standard & Poor's cut the search engine giant to sell. In doing so they buck the overwhelming sentiment of their peers, most of whom rate the stock buy even after a 300% run-up since its August 2004 initial public offering. Only one other analyst, Philip Remek of Guzman & Co., rates Google a sell, according to Bloomberg data.

In his note to clients, Devitt argues that Google's share price -- it fetched $453 Wednesday morning after a Yahoo! (YHOO Quote)-inspired 3% drop -- isn't justified by the fundamentals of the business.

"We believe Google is an outstanding company," he writes in a note to clients, but "we believe that the shares are overvalued." Devitt, who has no position in the stock, goes on to add, "Sell-side expectations have risen throughout 2005 to the point that we now see limited upside potential."

In addition, Yahoo!'s disappointing results yesterday "broke the sector momentum and sentiment which should now force investors to focus more on what these businesses are worth rather than where the stock may be going," Devitt says.

By Devitt's calculations, Google has an enterprise value that's about three times that of Yahoo! -- a gap that he believes isn't justified. Though he says he is uncertain about the fair value of Google, he believes that it is "well below" the stock's recent market capitalization of $142 billion.

"The company trades for 54% of the enterprise value of Microsoft(MSFT Quote) and is expected to generate approximately 12% of the free cash flow in 2006," he writes. "Even great businesses have a value, and, in our view, Google's market capitalization exceeded its intrinsic business value long ago."