The ability of Alphabet Inc.’s advertising business to bounce back amid the pandemic has one analyst hopeful about what’s yet to come.
Stifel’s Scott Devitt upgraded Alphabet Inc. stock
to buy from hold late Monday, arguing that “the resilience and speedy recovery” of Google’s digital-ad business is impressive and perhaps just the beginning for the the company.
“The bounce in advertising dollar flows have followed online consumer engagement, a quick return and redistribution of advertiser appetite, and digital transaction proliferation,” Devitt wrote. “Looking forward, we have increased confidence in Alphabet’s positioning to benefit from category recovery (travel, entertainment, media, auto) and more durable share capture in categories such as retail due to relevance as an internet gatekeeper.”
Devitt expects that businesses of all sizes are going to accelerate their digital journeys given the enhanced capabilities of digital ad formats compared to more traditional types, like television. The fourth quarter saw an “unprecedented reliance on online channels to drive sales” and Devitt predicts that the recent flow of ad dollars toward digital sources is “unlikely to reverse.”
He also sees appeal from a valuation perspective. Alphabet’s price-to-earnings ratio, based on estimates for the next 12 months, is about 28 times, roughly a standard deviation above the company’s average of 25 times, he said. But the company’s P/E ratio relative to the S&P 500 is 1.3 times, or about a standard deviation below the average of 1.4 times.
“[W]e view valuation on GOOGL shares as relatively attractive versus a significant segment of our coverage universe which has experienced material multiple expansion,” he wrote.
Devitt raised his price target on the stock to $2,350 from $2,025.
Shares have gained 16% over the past three months as the S&P 500
has risen about 7%.