Google parent company Alphabet (GOOGL) is expected to see its stock “grinding higher than jumping from here,” according to Jefferies analysts.
Despite a strong year-to-date performance with a 30% increase, Jefferies suggests that further growth in the second half of the year will be more gradual due to tougher comparisons and above-average valuations.
Fundamentals for Alphabet remain robust. The company benefits from “solid ad spend, potential benefits from Olympics and elections, and steady Cloud progress,” Jefferies notes.
The investment firm said the valuation, with an EV/EBITDA of approximately 14x NTM, appears attractive, especially if margin improvements continue. Jefferies maintains a Buy rating and a price target of $220 on the stock.
Alphabet’s (NASDAQ:) stock performance has been strong compared to its peers, outperforming most major internet and software megacaps except Meta.
Despite this, Jefferies points out that the company’s valuation, while above its 10-year average, remains reasonable. “Checks point to solid & healthy ad spend, despite the uneven macro, and steady Google Cloud, though momentum trails Azure and AWS,” Jefferies adds.
Jefferies anticipates a solid Q2 performance, bolstered by resilient consumer spending and consistent Cloud demand. However, they note that “Q2 comps are slightly tougher mainly in ad segments.”
Key estimates for Q2 include gross revenue of $82.8 billion to $84.3 billion, operating margin net of 35.7% to 37.6%, and significant revenue contributions from Search and YouTube.
Looking ahead, new CFO Anat Ashkenazi is expected to bring more disclosures that could aid valuation when she joins on July 31. Ad checks from various industry experts show positive trends, with expectations for sustained growth in Google paid search and healthy YouTube performance.
Overall, Jefferies sees Alphabet’s stock continuing its upward trajectory, albeit at a more measured pace due to the high bar set by its recent performance and valuation.
