Google analysts not just optimistic but forgiving

Caroline Valetkevitch and Eric Auchard

NEW YORK/SAN FRANCISCO: Even an earnings shocker can't seem to keep Google Inc. from getting some glowing reviews.

Analysts rushed to the defense of the Wall Street high flier on Wednesday after the Internet search company's quarterly results late Tuesday missed Wall Street expectations for the first time since it became a public company in August 2004.

Investors, too, were forgiving. The stock fell 7.1 percent to end at $401.78 on the Nasdaq, but rebounded sharply from levels of around $350 in Tuesday after-hours trading. The stock registered its biggest single-day percentage drop since Google went public.

Analysts defended Google's results, saying they showed a surge in advertising sales -- albeit at less than previous 100 percent-plus rates -- while it is also gaining share from rivals such as Yahoo Inc.

Bulls on the stock, including Goldman Sachs and Piper Jaffray, reiterated 12-month price targets of $500 and $600, respectively. Even Stifel Nicolaus, who recently downgraded the stock to "sell," stood by a $400 price target.

"In our opinion, it's not time to become a holder yet, but certainly the shares are more attractive in the mid-$300s than the mid-$400s," Stifel Nicolaus analyst Scott Devitt wrote in a research note to clients.

Goldman's Anthony Noto wrote to clients: "We would add to positions as (fourth quarter) results ... reinforce our long-term growth estimates, our implied value of around $500 and our (thesis) that Google can drive superior growth."

The stock, which reached the $400 level for the first time in mid-November, appears insulated from the normally harsh treatment meted out to high-flying technology stocks that widely miss Wall Street profit expectations.

"Most analysts that follow Google generally follow the Internet space, and they have three or four companies to choose from. They probably feel pressure to have some recommendation, and no one seems to care about valuation," said Steve Neimeth, portfolio manager for AIG SunAmerica Asset Management in Jersey City, New Jersey.

"Google, since they have a great business model, seems to be their preferred top pick for investment."

But Neimeth said he's not bullish on Google's stock. "For the valuation to make sense at these levels you have to assume it captures 50 percent of the $260 billion which represent every dollar spent on media in the United States. I do not think that is a fair assumption," he said.

Investors think Google shares will remain volatile over the next two-and-a-half weeks, said William Lefkowitz, options strategist at vFinance Investments, a brokerage firm based in Florida.

"The stock is going crazy," he said. "You would think after Google's earnings were released yesterday, that the volatility in the options would have died out, but we have not really seen that today."

(Additional reporting by Doris Frankel in Chicago)