No Hangover for Google

The Internet's hottest stock gets off to a strong start for 2006.
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If investors have doubts about whether

Google

(GOOG) - Get Report

can keep soaring, they weren't apparent Tuesday.

Google shares rose 1% in midday action after Piper Jaffray analyst Safa Rashtchy

raised the bar on the leaping search-engine stock. Rashtchy announced a 12-month price target of $600, topping a $575 target set by a rival Wall Street analyst just two weeks ago. Google, which doubled last year and has risen nearly fourfold off its August 2004 initial public offering price of $85, rose $6.19 to $421.05.

In his note, Rastchy describes Google as an "iconic company that like

Microsoft

(MSFT) - Get Report

and

eBay

(EBAY) - Get Report

before it has defined a new and vital industry."

Google is Rashtchy's top pick. His price target amounts to 50 times his 2007 pro forma earnings estimate of $11.91. Piper Jaffray makes a market in Google shares.

"Although such a high multiple may seem aggressive, we believe that given Google's dominant position in an already large yet still rapidly growing market, its phenomenal brand power and its status as a technology leader justifies such a valuation," writes Rashtchy, who rates Google outperform, in a note to clients.

Last month, Google outmaneuvered Microsoft to secure an ad partnership with

Time Warner's

(TWX)

America Online unit. Google also agreed to buy a 5% stake in AOL for $1 billion. That deal will do little to change the competitive landscape for Google, according to some analysts.

Indeed, skeptics are probably not going to be swayed by Rashtchy's arguments. They claim bulls are giving the Mountain View, Calif.-based company credit for things that it hasn't been able to accomplish in areas outside of search including advertising.

"Google's ability to woo AOL into maintaining its partnership and also further deepening it demonstrates Google's ability to temporarily stave off Microsoft," writes Merrill Lynch analyst Justin Pope in a note to clients. "However, the deal does not significantly change the search competitive landscape as it will be up to Google and AOL to prove that they can help each other to drive more traffic, improve content, and sell more advertising through their increased partnership efforts.

Yahoo!

(YHOO)

and Microsoft will still remain hot on Google's tail."

Merrill rates Google neutral. Twenty-six of the 35 analysts who cover Google rate it buy, while eight give it a neutral rating and one has it as sell, according to Bloomberg data.

Even Google's most ardent admirers on Wall Street concede that its fortunes are difficult to forecast, given that the Internet is changing rapidly and that the company's management doesn't provide quarterly financial guidance.

Google has beaten Wall Street analysts' forecasts for three straight quarters. The company also is in talks with

Wal-Mart

(WMT) - Get Report

and other retailers about selling a personal computer or other device to connect to the Internet, according to the

Los Angeles Times

. Google and Wal-Mart couldn't immediately be reached for comment.

Its performance has given Google no shortage of fans on Wall Street, including Rashtchy, who has been with Piper Jaffray since 1997. He was listed as a runner-up in

Institutional Investor's

latest ranking of Internet analysts.

Google will be helped by the 41% growth in the online-search market, which Rashtchy estimates generated $10 billion last year. He also expects Google's growth in search and online advertising to exceed its closest rivals, including

Yahoo!

(YHOO)

,

Amazon

(AMZN) - Get Report

and eBay.

Rashtchy's new price target is 35% higher than his previous $445. Late last year, JMP Securities analyst William Morrison set a price target of $575, the previous high projection for Google.