Google Core Is 'Scarce' And 'Undervalued,' Deutsche Bank Says

• Alphabet Inc GOOGL shares have been heading north over the past six months, and have lost 23 percent since August 3.
• Deutsche Bank’s Ross Sandler maintained a Buy rating for the company, while raising the price target from $900 to $1,080.
• There is little doubt about the strength of Google’s core franchise, Sandler stated.

Google’s 4Q results highlighted the strength of the core franchise. Terming Google as the Top Pick, analyst Ross Sandler noted, “There are few companies in global technology with $20B in quarterly revenue, consistently growing north of 20% ex-fx on top and bottom lines, and further, seeing re-acceleration – all truly astonishing feats.”

Google’s quarterly results were impressive, with Sites growth re-accelerating 2ppts y/y and core margins expanding 250bps y/y. EBITDA for core Google grew 20 percent y/y in 2015, despite significant currency headwinds.

Management highlighted strength in Mobile Search, YouTube, Programmatic and other areas. Sandler pointed out that Mobile Search and YouTube accelerated from “Rule of 50,” which can be best exemplified by growth in the UK – despite digital advertising exceeding 50 percent of total ad spend in the UK, Google’s revenue growth accelerated to 21 percent y/y ex-FX, crossing the 20 percent mark for the first time in 3 years.

The analyst added, “We think the current re-rating in GOOGL shares is 2/3rds of the way complete and is likely to grind to $1000+,”