8 Reasons Bank Of America Is Upgrading Google

Bank of America Merrill Lynch (BOAML) upgraded shares of Google Inc GOOG GOOGL from Neutral to Buy, and raised its price target from $580 to $650 on Monday. According to the firm, Google shares are becoming more attractive on the back of:

1. "Early signs of renewed product momentum."
2. Accelerating gross profit growth in the fourth quarter; app search ads provide potential for upside on the second half of 2015.
3. The Street's earnings estimates for 2016 (down from $36 to $33) are now in line with BOAML's estimates.
4. An attractive multiple when compared to the S&P500 (8 percent premium versus 22 percent average).

The report also outlines "several ways for the stock to outperform."

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According to BOAML analysts, "Google is arguably undervalued due to Street concerns on management objectives and spending." With Street estimates "more reasonable," the firm sees four ways for sentiment and the P/E multiple to improve:

1. "Product momentum after a product lull."
2. "Corporate initiatives to drive earnings (less hiring and capex; buybacks unlikely but possible in next 2 years)."
3. Apple contract resolution (no big financial risks anticipated).
4. Flow of funds back into Google after meaningfully underperforming its largest competitors (Apple, Facebook and Microsoft).