A day after Piper Jaffray set a $300 price target on shares of Google , CS First Boston said that wasn’t high enough, raising its target to $350.
CSFB, an underwriter of Google’s August IPO, raised its target after its previous $275 target was hit, saying Google’s phenomenal growth and potential have yet to be priced into the stock.
“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,” wrote CSFB analyst Heath Terry.
Google trades at 44 times forward earnings estimates, a premium to eBay , but less than Yahoo’s
forward price-to-earnings ratio of 52. However, Yahoo trades at 13 times sales, while Google trades at 20 times sales.
Both Google and Yahoo trade at about twice their price-to-earnings-growth (PEG) ratio, which means that investors may be pricing in higher long-term growth than analysts think the companies can deliver. And analysts have a pretty optimistic outlook for both companies, expecting them to grow at about 30% a year over the next five years.
In short, Google appears to be overvalued, but like long-running momentum play eBay, the momentum will likely continue until cracks begin to appear in the company’s growth story, a view Terry appears to be taking. “While we are cautious about the potential for an eBay-like event down the road as investor expectations rise with the share price, it does not appear to be a near-term risk,” Terry wrote.
The broader market rose Wednesday after a drop in national manufacturing and comments from Dallas Fed President Richard Fisher suggested that the Federal Reserve may be nearing the end of its interest rate hike cycle. A 5% jump in oil prices caused stocks to close off their highs, however.
The Nasdaq rose 19 to 2087, the S&P gained 10 to 1202, and the Dow rose 82 to 10,549. Volume declined to 1.83 billion shares on the NYSE, but rose to 1.83 billion on the Nasdaq. Advancers led 24-8 on the NYSE, and 19-10 on the Nasdaq. Upside volume was 79% on the NYSE, and 78% on the Nasdaq. New highs-new lows were 220-23 on the NYSE, and 111-55 on the Nasdaq.
After the close, eBay announced plans to buy Shopping.com for $21 a share.
During the day, United Online and Earthlink
fell 10-15% after SBC
cut DSL prices to $14.95.
Nortel rose 8% after the company reported a first-quarter loss.
eLong jumped 14% on an acquisition and deal with Sina
.
