UBS: Despite Regulatory Risk, Alphabet Is A Buy

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While investors were selling off shares of Alphabet Inc. GOOG GOOGL Monday in the wake of reports of an impending antitrust investigation, UBS Securities downplayed the threat to the stock. 

The Analyst

Eric Sheridan reiterated a Buy rating on Google with a $1,420 price target. 

The Thesis

Sheridan's message in the Monday note could be summed up as: what's new? 

Google’s stock has digested an on-again, off-again focus from U.S. and European regulators for most of the last decade, and has nevertheless done well, the analyst said. (See his track record here.)  

“We would expect that investors are likely to be cautious on the multiples applied to GOOG while under such scrutiny but point out that GOOG is still growing its total revenues 20 percent plus year-over-year and generating healthy free cash flow levels." 

Even if the Justice Department eventually were to break up Alphabet, it could be a positive development, he said.  

“We actually see unlocked value as the various pieces within GOOG's conglomerate would likely warrant a higher valuation,” Sheridan said.

What the DOJ is investigating is unclear, but Sheridan has an idea.

“We believe that an area of focus could be on search and programmatic advertising (possibly verticals such as local or travel) and the interplay between Google's app ecosystem and the Android OS,” he wrote.

But Google does have competition.

“The company faces competitive headwinds/threats in almost every area in which its products operate from the likes of Amazon.com Inc. AMZN, Apple Inc. AAPL, Facebook Inc. FB, Microsoft Coporation MSFT, Netflix Inc. NFLX and overseas companies in the area of digital ad, media consumption, mobile hardware/software and cloud.”

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Price Action

Alphabet Class A shares were falling by more than 7 percent to $1,028.44 at the time of publication Monday. 

Related Links 

Alphabet's Google Braces For Antitrust Investigation From The Justice Department

Adding Perspective To Google's $2.7 Billion European Fine

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Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsTechDepartment of JusticeEric SheridanFAANGGoogleUBS Securities
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