Goldman Sachs Adds Google To Conviction Buy List, Sees 31% Upside

• Google Inc GOOGL shares are down 11 percent in the past 5 trading days, after appreciating above $699 only a month back.
• Goldman Sachs’ Heather Bellini upgraded the rating on Google from Neutral to Buy, while adding the company to the Conviction List and raising the price target from $660 to $800.
• Bellini believes that the company would benefit from momentum in mobile search and YouTube, as well as efficiency gains.

Analyst Heather Bellini wrote that Google is in the initial stages of a “multi-year cycle” for margin expansion, which would drive earnings outperformance and multiple expansion. Since 2010, the company’s operating margin has contracted every year by around 150-250bps.

Bellini believes that execution on the margins, greater insight into the CFO’s initiatives for next year and new financial disclosures to be announced with the 4Q15 earnings would drive the company’s stock over the next few quarters. Moreover, field checks indicate increased potential for monetization in mobile search and YouTube.

In the report Goldman Sachs noted, “We believe accelerating monetization in mobile search and YouTube coupled with an eye on expenses at the core is continuing to bear fruit and see the new operating framework and cost initiatives set forth by the new CFO impacting CY16 and beyond. We raise estimates on momentum with mobile search and YouTube as well as higher margin forecasts.”

The EPS estimates for 2015, 2016 and 2017 have been raised from $24.17 to $24.38, from $27.61 to $29.79 and from $32.89 to $36.03, respectively.