Rangebound Google Gets An Upgrade
Alphabet (NASDAQ: GOOG), despite the rangebound nature of trading in 2022, is one of the most heavily upgraded stocks coming into the Q1 earnings season. The company has received at least 12 major upgrades and/or price target increases in the time since the last earnings report and it received quite a few immediately after that event as well. The latest comes from Citigroup which upped the rating to a Buy from Neutral with a price target of $3,500. That target is just above the Marketbeat.com consensus figure which assumes about 35% of upside but is a far cry short of the high price target of $4,183. If the Q1 results are better than expected we see the consensus target extending its upward trend and leading the stock higher.
Conversely, analysts Justin Patterson at Keybanc lowered his price target to the Wall Street low on concerns over the valuation. In his view, the stock may warrant a lower earnings multiple although the 22X it trades at now is in line with the S&P 500 average. Regardless, the new Keybanc target is still well above the current price action.
Google is expected to report earnings in the last week of April and produce 22% YOY growth. The problem for the market, and with the valuation, is that growth is slowing from the higher double-digit rates set in the wake of the pandemic to levels not seen since before the pandemic and slower. There is a chance the company will outperform because the analyst's consensus is expecting a bigger seasonal decline than historically indicated there is also a risk for weakness.
There Are Other Risks For Google Investors
Analyst Rohit Kulkarni dialed back his earnings estimates for the pantheon of internet advertising companies including Google because of four headwinds facing the industry. In his view, the Russia/Ukraine conflict has far-reaching repercussions that could lead to a combination of weak ad-spend and user engagement.
"We believe online advt. companies are facing four incremental macro headwinds: (1) direct impact of the Russia/Ukraine war; (2) indirect impact and potential contagion from the war into Europe; (3) soft brand ad spend, particularly around geopolitical content; and (4) likely impact from soft consumer spend in Europe, driven by inflation and higher oil prices," Kulkarni says.
Institutional Interest Is Shaky
As bullish as the outlook for share prices is, the institutional interest in Alphabet is shaky at best. According to Marketbeat.com data, the institutions own about 65% of the company compared to higher numbers for most other FAANG names and their activity is more rotational than bullish. The institutions have been net buyers for 4 of the last 5 quarters including Q1 2022 but have only picked up about 1.25% of the market cap in that time. This activity will help support the price action but is not a catalyst for higher prices and even poses a threat should the institutions start selling.
The Technical Outlook: Google (Alphabet, Ahem) May Move Higher
Price action in Google looks like it will move higher over the next few weeks and months but there is a caveat. Even if the results are good, the stock is range bound with resistance expected at the all-time high. Price action will have to move above the $3000 level for us to have a truly bullish outlook. Until then we see this stock moving sideways within the range with a possible upside target about 20% above the current action. If, on the other hand, Google’s results are anything like we saw from Netflix, the price action could implode along with the earnings outlook.
Alphabet is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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