SunTrust's Bob Peck On Google: 'The Numbers Support The Letters'

• Shares of Google, Inc. GOOGL have risen 19.59 percent, year to date, reaching a peak of $699.62 on July 17.
• Robert S. Peck of SunTrust Robinson Humphrey has reiterated a Buy rating and price target of $770 on the company.
• While the risk/reward profile of the stock is currently favorable, Peck expects meaningful upside when visibility improves into the performance of the company and its various segments.

Analyst Robert Peck explained, “We view the reorganization positively as it should allow for a greater investor focus on the core revenue and profit drivers, while allowing exposure to possible areas of investment / optionality for the future and the impressive investment portfolio.”

The core Search business continues to be the primary cash flow and valuation driver for the company, according to Peck. However, core growth has weakened in the recent past, driven by lower CPMs for mobile/video, affiliate sites improving their user experience and Fx headwinds.

“We believe, however, that future growth likely will come more from secular growth in online/mobile video usage and monetization, Cloud, targeted local ads, and Mobile,” the SunTrust report said.

Peck expects revenue of $80 billion (ex-TAC) and EBITDA of $45 billion for the core Search business by 2017, from revenue of $52 billion and EBITDA of $28 billion in 2014.

Alphabet’s other businesses include “a diverse array of operating businesses, startup investments, and Google X.” It also includes some “nascent operating units” and “next-gen initiatives.”

Peck believes that these businesses would be able to generate revenues of $2 billion and EBITDA of $(4) billion by 2017, as compared to revenues of $350 million and EBITDA of $(2) billion in 2014.

The EBITDA estimates for 3Q15 and 2016 have been revised to reflect increased costs.