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Google Fans Still Gushing

Google (GOOG) got another pat on the back Thursday as the big search engine closes out another spectacular market year for its shares.

JMP Securities raised its 12-month price target on the stock to $575 from $400. Google shares, which have doubled this year and are up fourfold from their August 2004 initial public offering price, rose 76 cents to $427.09.

Analyst William Morrison now appears to have the highest forecast of Google's share price of any analyst covering the company. The most bullish price targets for Google until now have been $500. Six analysts have raised their price targets on the shares since it hit $400 on Nov. 17.

Morrison's target comes a day after Google agreed to invest $1 billion for a 5% stake in Time Warner's (TWX) America Online Internet unit. For its part, AOL will get $300 million in advertising credits from Mountain View, Calif.-based Google. The deal has been denounced by billionaire investor Carl Icahn, who is waging a proxy fight with the media giant.

Morrison based his price target on 2007 forecasts of earnings before interest, taxes, depreciation and amortization and free cash flow. He values Google at 50 times his $11.50 free cash flow per share estimate and 25 times his $6.6 billion EBITDA projection. Previously, Morrison based his target assuming 27.5 times his $4.3 billion 2006 EBITDA and 50 times his $7.85 free cash flow per share forecasts.

"We encourage investors to discount our price target by some reasonable hurdle rate or the cost of capital for the company in determining the near-term investment opportunity," Morrison, who rates the shares outperform, says.

The AOL deal presents a big opportunity for Google, Morrison says. Assuming what he considers to be a "conservative" EBITDA margin of 50% and no growth in 2006, AOL will likely generate about $45 million in cash flow for Google next year. The AOL relationship would account for about $1.2 billion of Google's enterprise value, on the basis of Google's current multiple.

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