Far from being overpriced, shares of search engine
still don't reflect the company's dominant position in Internet advertising and new businesses like Gmail and Froogle, CSFB argued in an extremely bullish note published Wednesday.
The brokerage raised its price target on Google's shares to $350, noting that its previous goal of $275 was taken out on Tuesday. CSFB said the target reflects a 12-month discounted cash flow model and comes out to an enterprise value of 30 times next year's earnings before interest, taxes, depreciation and amortization.
CSFB was an underwriter of Google's August 2004 initial offering.
"Based on query volume and data from Nielsen and pricing surveys, both our own and third party, we believe that growth is tracking at roughly 5% sequentially, vs. consensus expectations of 2%," CSFB wrote. "So while we are cautious about the potential for an eBay-like event down the road as investor expectations rise with the share price, it does not appear to be a near-term risk."
About $12 billion of market capitalization was erased on Jan. 20 after
quarterly earnings came in a penny light.
CSFB said Wednesday that Google's valuation is not out of line with other Internet stalwarts like eBay and
. The brokerage pegged Google shares at 42 times next year's earnings and 24 times next year's EBITDA. The same multiples are respectively 55 and 24 at Yahoo! and 37 and 21 at eBay, CSFB said.
"We would argue that because of its superior growth rate Google should trade at a premium to both companies," CSFB said. It estimated Google's three-year EBITDA growth rate at 45%, seven percentage points above its estimate for Yahoo! and eBay.
Google's shares had a huge May, starting at $180.51 and closing Tuesday at $277.21 for a gain of 54%. Wednesday morning, the stock added $6.53, or 2.4%, to $283.80.