An employee passes the Google logo.
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Google is undervalued against its peers, the broader market and its own history, according to Jefferies.
Shares of Alphabet, Google’s parent company, are up about 12% year to date, compared to the S&P 500, which is up 17% since the start of the year, and compared to its large-cap tech peers, Amazon (up 21%), Microsoft (up 36%), Facebook (up 45%) and Apple (up 35%). The stock is also trading below its 10-year average.
“We remain positive on GOOGL on attractive valuation and a portfolio of assets waiting to be unlocked,” said Jefferies Technology analysts Brent Thill.
Google’s market cap sits around $820 billion, but runs at a 30% discount to the real total value of the company, the firm estimates, “suggesting the market assigns zero value to all “other” segments and “other bets,” said Thill.
Thill said that Google’s valuation “reflects pessimism.” Investors worry about a recent slowdown in advertising revenue growth, competitive losses to Amazon and Facebook, new initiates with lower margins and heightened regulatory overhang.
Although these are valid concerns, according to Thill, Jefferies remains positive on the company’s stock with “ample value to unlock.”
More transparency with investors about new segments and financials, positive sentiment from an increase in share buybacks and a pickup in M&A can all help the “ailing stock,” said Thill.
A step in the right direction was the $2.6 billion acquisition of computer software company Looker, to help boost Google’s cloud business.
The “Looker deal could be the first in a series of deals to help Google Cloud Platform catch up to AWS and Azure,” he added.
Jefferies has a buy rating on the stock and a $1,500 price target. Alphabet’s stock jumped 1.6% on Thursday.
— with reporting from CNBC’s Michael Bloom