Is Google Really Worth $600? (GOOG)

You know the market sentiment and the bull/bear tone has changed when you see research targets get this high.  Google Inc. (NASDAQ: GOOG) is trading up over 3% today on positive broker research. Frankly, this looks like something for more weekend thought rather than something that was a new sudden great trade outside of the markets running with financial stocks.   It looks like Broadpoint AmTech was a positive call responsible for this, but the real ‘weekend thought’ piece came from Sanford Bernstein.

We saw an initiation of coverage this morning at Broadpoint AmTech with a BUY rating, and that target was $480 per share.  Despite the 30% run in Google’s stock, this is over the increased opportunity for digital content as the economy improves.

Sanford Bernstein reiterated its Outperform rating earlier this morning, but the firm raised its target to $600.00 per share.  If the old targets are all updated properly, this may be a high on the Street and indicative of another 50% gain in the stock.  Much of this is based on margins improving into next year.

We wanted to look at the high-end of the range of 2010 estimates to ponder if this $600 valuation is fair.  For argument’s sake, we will assume that Google earnings $26.00 per share (actual consensus is $23.95).   That generates a forward P/E of 23 at the $600 mark.  If the stock traded at today’s $409.00 mark and still commanded the same earnings, then its forward P/E is roughly 15.7 on a forward basis.

You will have to decide which numbers and which values work the best for you under this scenario.

As an online advertiser we would note that for these numbers to get hit at Google, either the company has to start keeping more of its online adverting share of the “Traffic Acquisition Costs” or online ad rates will have to start heading back up rather than stabilizing.

Or maybe the bull market just has to continue….

JON C. OGG
MAY 8, 2009