Google, Facebook Lifted to Buy at Stifel on Valuations, Sustained Revenue Momentum

Stifel sees Google becoming even more dominant in digital ads, and Facebook sustaining momentum while managing profit margins.
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Facebook FB and Google GOOGL both saw upgrades and price-target increases from analysts at Stifel.

They see Google growing its market share in digital ads and Facebook sustaining its momentum, while both companies trade at low valuations compared to their histories. 

Google shares on Thursday rose 0.6% near $1,327. Facebook rose 0.3% to $199.34. The broader U.S. market was up. 

"We are encouraged by Google’s continued share gains of advertising dollars and see a continued runway for healthy revenue growth, leading us to raise our long-term properties revenue estimates," wrote Stifel analyst Scott Devitt. 

He raised his price target to $1,525 from $1,325, with the new target representing 15% upside from the stock's current level. He upgraded the stock to buy from hold.  

His price-target increase is also based "on valuation and durable earnings growth," Devitt said. 

Google currently trades at 24 times next year's earnings, a discount to its historic valuation levels, albeit as the company is seeing slower growth than in past years. 

But many analysts still see the valuation as cheap. Devitt values Google at 28 times his 2020 EPS estimate and is looking for earnings growth in 2020 of roughly 14%. 

As for Facebook, "We are upgrading shares of Facebook to buy from hold on valuation and strong core business with operating leverage expected," Devitt said. 

"We are incrementally positive on Facebook’s ability to drive sustained above-market ad revenue growth, maintain healthy levels of user growth / engagement, and better align expenses with top-line growth to deliver operating leverage in fiscal year 2020 and beyond." 

Devitt moved his price target up to $240 from $215, with the new target reflecting 21% upside. 

Facebook is also trading at a historical discount, at 21.7 times forward earnings. The company has had to add staff for data and privacy security needs, which has pressured operating margins in the past year or so. But Devitt sees management managing those costs more efficiently. He values Facebook at 27 times 2020 EPS. 

He is looking for 15% to 20% revenue growth through 2023, aided by "healthy online ad industry growth." 

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