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Google (GOOG) PT Lifted To $675 By Deutsche Bank, 'Buy' Maintained

 April 14, 2012 12:15 PM

Deutsche Bank analyst Lloyd Walmsley increased its price target on shares of Google Inc. (NASDAQ:GOOG) to $675 from $649 while maintaining "Buy" rating, after the company reported solid Q1 revenues and operating profit, showing welcome operating expense discipline.

While Walmsley believes the shares may be range bound ahead of a difficult FX comp in Q2 and Q3 and Motorola Mobility Holdings Inc. (NYSE:MMI) integration, he sees meaningful upside potential in Q4 driven by improving mobile CPCs in the holiday shopping season as well as ongoing market share gains in mobile and display. He views the stock as attractively priced relative to its growth.

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Google reported $8.135 billion in net revenues, slightly ahead of the analyst's $8.075 billion and consensus of $8.094 billion (up 0.0% sequential net revenue growth versus his estimate of down 0.7%). Operating expenses was lower versus estimates on slower headcount growth (up 1.9% year-over-year versus his estimate of up 3.9%).

As such, operating profits and EPS outpaced Walmsley's estimates, although lower taxes added $0.37 to PF EPS of $10.08 (versus his $9.40 estimate). Paid clicks accelerated again to 39% year-over-year, though CPCs declined 12% largely on a mix shift.

The brokerage is increasing its Q2 and 2012 revenue and EPS estimates, largely on lower tax rate assumptions. The firm estimates 1.6% sequential net revenue growth in Q2 (and EPS of $9.79), and 21% year-over-year net revenue growth in 2012 (versus 19% previously).

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The analyst's 2012 EPS estimate now stands at $42.20, up from $40.55, of which about $0.80 is attributable to a lower tax rate assumption. For 2013, he estimates $47.82 in EPS, up from $46.42 previously, on 17% net revenue growth.

The next catalyst for Google shares is likely the close of MMI, which is expected soon. Walmsley believes any color around cost controls or the spinoff of parts or all of MMI would be received positively by investors, and any talk of investment in MMI would likely be received as a short-term negative.

The analyst raised price target to $675, which is based on 16 times 2012 EPS. He thinks this premium to the market (S&P500 multiple of 13.2 times) is justified given the secular growth of Internet ads & better-than-expected growth at Google versus market growth.

GOOG closed Friday's regular trading down 4.06% at $624.60.



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