On Monday, KeyBanc has increased its price target on Alphabet Inc. (NASDAQ:GOOGL) shares to $175 from the previous $165, while maintaining an Overweight rating on the stock.
The firm's analyst pointed to Alphabet's expected quarterly performance, including a year-over-year search revenue growth of 12%, slightly above the consensus at $45.1 billion, and total revenue anticipated to reach $79.4 billion, marking a 14% increase from the previous year.
The firm also projects Alphabet's operating income to surpass expectations, estimating it at around $22.5 billion, which is approximately 2% above the Street's forecast. KeyBanc advises investors to consider potential legal and restructuring costs that may impact the company's financials.
The analyst's commentary reflects anticipation of Alphabet's continued focus on product development and division restructuring, as indicated by CEO Sundar Pichai's blog post on the company's AI future.
KeyBanc also raises its earnings per share (EPS) estimates for Alphabet for the years 2024 and 2025 by 2% and 1%, respectively, resulting in a new projection of $7.03 for 2024 and $8.20 for 2025. This revision accounts for a lower advertising revenue forecast but an improved operating margin. The new price target of $175 is based on a 21.3 times multiple of the anticipated 2025 earnings per share.
The analyst speculates on the possibility of Alphabet introducing a dividend in the future, though whether this will occur under outgoing CFO Ruth Porat or her successor remains an open question. The raised EPS forecasts have been a contributing factor to the updated price target.
InvestingPro Insights
Alphabet Inc. (NASDAQ:GOOGL) is currently trading at a P/E ratio of 26.6, which becomes even more attractive considering the adjusted P/E ratio for the last twelve months as of Q4 2023 is 24.73. This aligns with KeyBanc's optimistic outlook, as Alphabet is also trading at a low P/E ratio relative to near-term earnings growth. The company's robust financial health is underscored by a strong balance sheet, where cash reserves exceed debt, ensuring financial flexibility for future investments and product developments.
With a market capitalization of $1.93 trillion, Alphabet's revenue growth of 8.68% over the last twelve months, as of Q4 2023, supports KeyBanc's positive revenue projections. The company's operating income margin of 28.7% and a return on assets of 19.23% for the same period reflect efficient operations and profitability, which may underpin the analyst's raised EPS estimates and the potential introduction of a dividend in the future.
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