How Google Gets To Over $850

• Since Google Inc GOOG announced its new Alphabet operating structure on August 10, the stock has moved sideways, down just 0.25 percent.
• Bank of America Merrill Lynch analyst Justin Post expects this new operating structure to add significant value to the company, potentially past his $750 price target.
• In total, the split could give the company's cash "greater consideration," while helping to provide the loss-generating business units with a positive value – ultimately pushing the stock past $850.

When BofA Merrill's Justin Post looks at Google from a sum-of-the-parts valuation (SOTP), he values core Google at $740 per share. Adding in other values for Google's cash ($85 per share), as well as the loss-generating businesses, he sees the potential for Google to climb to more than $850 – a more than 34 percent increase from current price. If the analyst gives Alphabet's losing businesses a $0 valuation, he sees Google at $828 in a SOTP valuation.

In total, Post's views are representative of many on the Street (examples here and here), who think that separating the business is more than just financial engineering. However, the stock has yet to react meaningfully to the move – expected to be solidified in January 2016.

Further, Post said that this move solidifies Google's transition from an Internet company to an "all-things technology" company. It is more "significant" than just reporting the business units separately, he added.

But alongside this transition, Post warned that there is a risk for spend to get out of control. "While Larry Page's blog post highlighted a thoughtful process in capital decision making, the risk we see is that investment spend at other Alphabet companies is about to accelerate under the new structure," he concluded.

Year to date, Google has outperformed the Nasdaq, gaining 20 percent compared with just 3 percent gains in the underlying index. Most of those gains came in July, after the company reported better-than-expected quarterly results.