Without a doubt, COVID-19 has wreaked havoc on companies of all shapes and sizes. Even the Street’s heavy hitters haven’t been completely immune to the deadly virus, with a majority of players feeling the impacts in one way or another. This is the case for Google’s parent company, Alphabet (GOOGL).
Writing for Tigress Financial, 5-star analyst Ivan Feinseth acknowledges that the pandemic spurred a decline in advertising, but he tells clients that he is in no way straying from his bullish thesis. As more normal economic activity resumes, this segment should bounce back, in the analyst’s opinion.
Additionally, GOOGL was able to overcome the headwinds thanks to a strong showing from Google Cloud, Google Play and YouTube. “GOOGL benefited from the current work, learn, play, and entertain at home trends, driven by its dominant position in every key secular technology trend that enabled consumers to communicate and access information,” Feinseth explained.
This was made evident by its Q2 2020 results. Net sales revenue grew 12% year-over-year from $147.85 billion to $165.62 billion. It should be noted that Return on Capital (ROC) and Net Operating Profit After Tax (NOPAT) declined during this period. However, Feinseth said, “We believe recovery from near-term COVID-19 pandemic-driven headwinds will provide further upside to our expectations and continue to drive GOOGL’s long-term shareholder value creation.”
What else is behind Feinseth’s optimistic approach? He points out the company “continues to build on its strength in all key technology growth areas, including Search, mobile, cloud, data center, e-commerce, entertainment, home automation, and autonomous vehicle technology, as well as health and fitness.” Not to mention it’s also placing a significant focus on its cloud infrastructure and machine learning, which are expected to be future growth drivers, according to the analyst.
These efforts not only include ongoing development, but also acquisitions and partnerships. “GOOGL is currently in talks to acquire software provider D2iQ to integrate Google-developed Kubernetes open-source server management technology. The acquisition will better enable it to compete with Amazon’s Amazon Web Services and Microsoft’s Azure cloud services,” Feinseth stated. When it comes to partnerships, GOOGL has teamed up with the likes of Cisco and AT&T.
If that wasn’t enough, for the first time, the tech giant opened Waymo to outside investment. Feinseth also highlights the “ongoing investment in Search innovation continues to assure GOOGL’s dominant search position and drive advertising revenue growth,” along with its robust balance sheet. He believes its cash position will “provide stability to overcome any COVID-19 pandemic-related headwinds and enable the ongoing funding of key growth initiatives.”
Based on all of the above, Feinseth reiterated his bullish call without specifying a price target. (To watch Feinseth’s track record, click here)
In general, other analysts echo Feinseth’s sentiment. With 29 Buys and 2 Holds, the word on the Street is that GOOGL is a Strong Buy. Given the $1,756.17 average price target, the upside potential comes in at 7%. (See Alphabet stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
This article was originally posted on TipRanks.