Google Inc. (Nasdaq: GOOG, GOOGL) surprised investors after Monday's close with news the company is restructuring. Following the news, the Google stock price received numerous upgrades from Wall Street.
The tech giant announced the formation of Alphabet Inc., which will replace Google Inc. as the company's publicly traded entity. All shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights.
In short, nothing changes for Google shareholders.
But under Alphabet Inc., there will be segment reporting. That will make it easier to assess Google's core business apart from other Google businesses deemed by many as pure speculative ventures. Core businesses include Internet search, Android, ads, and YouTube. Speculative ventures include Nest, Life Science, Calico, and Google's X lab, which incubates new efforts such as Google's drone delivery service.
The restructuring news sent Google shares surging. The Google stock price soared more than 6%, or $40.88, to $704 Tuesday morning.
Analysts also rushed to revise their Google price targets. Here's some of Tuesday's notable Google upgrades.
Analysts Upgrade Google
- Monness, Crespit & Hart has the most bullish price target. The New York-based firm upgraded Google stock to "Buy" from "Neutral" with a $900 price target. The firm noted Monday's news, along with the positive reaction to new Chief Financial Officer Ruth Porat, are encouraging long-term trends.
- Stifel upgraded Google to "Buy" from "Hold" with an $850 price target. The firm says Google has recently been giving investors exactly what they've wanted: a strong management team exercising disciplined focus on value creation and multiple business units operating with reasonable levels of autonomy. Stifel believes this combination leaves the possibility for shares to exceed the S&P 500 return for many years on the back of this new operating structure.
- Mizuho Securities lifted its rating to "Buy" from "Neutral" with a Google stock price target of $715. The firm's biggest Google concerns had been lack of transparency for investors, an organization that's too large (55,000 employees) and not very nimble, and the European antitrust lawsuit. The firm believes Alphabet Inc. is a major catalyst for the stock and addresses its first two concerns.
- Pivotal Research notes the incremental transparency into Google's business is positive, although it remains uncertain as to exactly how transparency will be provided. However, Pivotal says the news should be viewed favorably and rates Google "Buy."
- RBC Capital Market reiterated its "Outperform" rating on Google saying the split into two companies, core Google and Alphabet, is a way to better focus on management and provide a more nimble structure.
- FBR Capital views the restructuring move as an important step toward improved transparency and accountability, supportive of a higher valuation. Better transparency, in FBR's view, may also be a sign that Google is attempting to strike a better balance between its founders' interest and investors' interest. The firm says Google offers an attractive GARP (growth at a reasonable price) media investment, with an "unassailable moat in search and very attractive exposure to each of the key structural growth areas of the Internet: search, online video, mobile, and the app economy." FBR rates Google "Outperform."
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