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Alphabet Remains Best Positioned Online Media Stock: BofA

'We continue to rate Google as our top 2021 FANG given exposure to cyclical recovery versus peers with tough comparisons,' BofA said.
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Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report continues to rank as Bank of America’s best positioned online media stock, as the technology juggernaut prepares to release third-quarter earnings Tuesday.

“We continue to rate Google as our top 2021 FANG [Facebook  (FB) - Get Facebook, Inc. Class A Report, Apple  (AAPL) - Get Apple Inc. (AAPL) Report/Amazon  (AMZN) - Get Amazon.com, Inc. Report, Netflix  (NFLX) - Get Netflix, Inc. (NFLX) Report, Google] given exposure to cyclical recovery versus peers with tough comparisons,” BofA analyst Justin Post wrote Sunday.

“Despite added IDFA [identifier for advertising] and supply chain uncertainty in the fourth quarter, we remain constructive on the stock,” he said. That’s partly because of his “reasonable” price-earnings ratio estimate of 18 based on 2022 core earnings.

His bullishness also owes to “expected … stability of search versus social due to added fourth-quarter search activity and travel/local ad recovery, and potential for $10 billion-plus, three-year cloud profit improvement.”

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To be sure, risks include unexpected deceleration in ad revenue growth in the fourth quarter, due to slowing e-commerce volume (supply chain issues), and potential for a re-investment cycle to drive margin declines in 2022, Post said.

There also may be new regulatory challenges, with the revenue of Alphabet’s app store Google Play most at risk, he said.

Post has a buy rating and a $3,150 price target for Alphabet. The bank’s show of support didn’t have much impact on the stock, which recently traded at $2,746.57, down 0.17% at last check.

Morningstar analyst Ali Mogharabi puts fair value at $3,200 for Alphabet and assigns it a wide moat. “We expect the economic recovery, which Morningstar forecasts to continue through 2025, will drive solid overall advertising growth,” helping Alphabet, he wrote last month.