Google shares gained nearly 4 percent yesterday after Credit Suisse First Boston (CSFB) lifted its price target on the stock to $350. There was also speculation...
NEW YORK — Google shares gained nearly 4 percent yesterday after Credit Suisse First Boston (CSFB) lifted its price target on the stock to $350.
There was also speculation that Google may soon be included in the S&P 500.
CSFB analyst Heath Terry raised Google’s target price to $350 from $275 after the company closed at $277.27 on Tuesday. Thinkequity Partners had set an earlier target ceiling of $330.
In a research note, Terry said the valuation is not out of step with other Internet stocks such as eBay or Yahoo — Google is trading at a price-to-earnings ratio of 42, while Yahoo is trading at 55 times earnings and eBay at a ratio of 37.
Shares of Google rose $10.77, or 3.9 percent, to $288 yesterday.
“We believe shares have further to go given the momentum in the company’s core advertising business, the growing impact of new business like Gmail, Froogle and Local and a valuation that — relative to the company’s growth rate — is far from stretched,” Terry said of Google in the note.
The new, higher-price target may not be Google’s only booster, said Janco Partners analyst Martin Pyykkonen. There is talk that Standard & Poor’s may include Google in its 500 index, he said.
“I think a lot of the real momentum is related to the S&P 500 speculation,” he said. “Once it’s in, you have a multitude of index funds that literally have to buy the stock. I think it’s a foregone conclusion. It will go in.”
It may just be a matter of when.
But Standard & Poor’s isn’t saying.
The S&P requires companies in its 500-index to meet certain criteria: The company must be based in the United States, post positive earnings for four consecutive quarters, trade with adequate liquidity and have a market capitalization of $4 billion, among other characteristics.
S&P Index Committee Chairman David Blitzer said Google meets all of the requirements, but he declined to say whether the company would be included.
Google went public in August and by November its shares were trading just shy of $200. Last month Google shares opened the month trading at about $180 and closed Tuesday at $277.21 for a monthly gain of 54 percent.
Derek Brown, an analyst with Pacific Growth Equities, said Google’s success may be due to larger marketing trends that favor online advertising companies.
Brown cited a recent report from PricewaterhouseCoopers and the Interactive Advertising Bureau, an online-advertising industry-trade group, that put total advertising revenue for 2004 at $9.6 billion — up 33 percent from $7.3 billion in 2003.
Pyykkonen cautioned that although some analysts see Google as an even better value than Yahoo, the next-year earnings guidance for the company varies widely.
Analysts surveyed by Thomson Financial expect earnings per share of $6.59, but that is the median of a range of $5.67 to $7.44.
“Google’s entire business today is based on you and me and millions of others clicking on those right-of-the-page ads,” Pyykkonen said. “Putting all your eggs in one basket is great when things are rocking, but it’s risky.”