Google Inc. (GOOG) shares are trading sharply lower Friday after the Mountain View, Calif.- based company provided disappointing earnings results (missed on EPS but beat on revenues: EPS of $8.08 versus consensus of $8.10 ; revs were $6.54B, excluding TAC, versus the $6.32B consensus) that were pressured by higher operating expenses, climbing to $2.84 billion from $1.84 billion in the year-ago period. As a result, Citigroup (C) downgraded Google this morning to “Hold” from “Buy” and lowered its price target for shares to $650 from $750. In addition, Google’s PPS target was lowered to $680 from $720 at Caris, $700 from $750 at BMO Capital, $650 from $715 at Oppenheimer, $700 from $750 at Wedbush and at Credit Suisse Group (CS), and $750 from $775 at Stifel N. Morgan Stanley (MS) also lowered its price target on the co. to $645, but the New York-based investment bank said it is keeping its “Overweight” rating on shares.
In a note to clients Morgan Stanley wrote: [from Benzinga] “Although we believe Google Instant has delivered revenue upside, several challenges overshadow this strength. We think investors will now focus on management changes, near-term margin declines, intermediate-term regulatory risks, and long-term competition – quite a wall for a stock to climb. The key CQ1 confirmation is that margin expectations have been reset to a new, lower level. We maintain our OW rating but lower our forecasts and cut our target price to $645, removing Google from our Best Ideas list.”
Not everyone however is lowering their GOOG estimates. [From MW] Heath Terry, an analyst with FBR Capital Markets, maintained his $750 price target and “Outperform” rating on the co.’s shares, noting that Google still has a leading position in the market.
“Google is best positioned to benefit from the recovery in ad spending and overall growth in Internet usage,” Terry wrote in a note to clients.
Jeetil Patel of Deutsche Bank (DB) went further by lifting his GOOG PPS target to $700 from $626 while maintaining his “Buy” rating. “Investors should track operating profit dollars, reflecting healthy top-line growth,” Patel wrote in a research note.
From a valuation perspective, Google shares trade at a 5.85x on a price to sales basis. The ticker has a trailing P/E of 20.44, a forward P/E of 13.47 and a P/E to Growth ratio of 0.92. The median Wall Street price target on the stock is $750.00 with a high target of $800.00.
GOOG in late trading fell $40.90, or 7.07%, to six-month low of $537.59. The stock is off about 4.3% for the year-to-date. Ticker support is at $536.84 ; long term support is at $527.62. Volume: 8.4 million shares traded as of 1:11 p.m. EST vs 2.75 million daily (3m) average.