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Google's Underwriters Like the Stock

Google's (GOOG) underwriters started coverage of the search-engine company's stock Tuesday, setting price targets as high as $145.

That 12-month goal for the stock, from Credit Suisse First Boston's Heath Terry, represents a 20% increase from Google's price Tuesday morning and a 71% gain from Google's initial public offering price of $85 a share.

CSFB's report was one of at least five positive reports issued Tuesday by Google's underwriters following the 40-day post-IPO blackout on research from a company's underwriters.

Contrasting with mixed reviews for Google already published by analysts from firms that didn't participate in Google's IPO, CSFB's report, along with initiations from fellow joint book-running manager Morgan Stanley and underwriters Thomas Weisel Partners, WR Hambrecht and J.P. Morgan, all assigned Google ratings equivalent to a buy.

On Tuesday morning, Google's shares climbed $2.39 to $120.65.

While acknowledging the challenges in valuing Google and forecasting its future, the analysts publishing Tuesday generally argued that Google is a strong play on the growth in the relatively young Internet search advertising market.

Terry, initiating with an outperform rating, forecasts that over the next five years, Google will be able to show annual revenue growth of 50% and annual earnings growth over 30%. "In our own valuation analysis," writes Terry, "we have arrived at prices ranging from $82 all the way [to] $220, each with its own justification. We have triangulated to an initial 12-month target price of $145 based primarily on our own [discounted cash flow] model."

Morgan Stanley's Mary Meeker, assigning Google an overweight rating, doesn't assign a price target to the stock but notes that her "best efforts base-case DCF" model leads to a valuation of $132.

Near-term opportunities for Google include improving the search experience and capturing share in page view growth across the Internet. "We believe that if Google continues to execute, the company should be well positioned to benefit from ongoing, secular Internet user and usage growth," writes Meeker.

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