Canaccord Genuity analysts Michael Graham and Maria Ripps increase Google Inc (NASDAQ:GOOG)’s price target from $1,370 to $1,400 and rate the company as a Buy as they glean new information on the company.
On January 29, Google Inc (NASDAQ:GOOG) announced that Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) (HKG:0992) will acquire its Motorola Mobility smartphone business for $2.9 billion (in a combination of cash, stock, and a three-year promissory note). We continue to believe this is a smart move by Google, and our positive outlook for the stock remains unchanged. We are adjusting our model to reflect the reclassification of MMI as a discontinued operation until the transaction closes (which we expect to happen in the next few months).
Google: Investment highlights
- Removing MMI from our consolidated model removes $3 to $4 billion in revenue per year while also removing $0.5 to $1.0 billion in operating losses per year.
- We note that these changes should help Google Inc (NASDAQ:GOOG) stock screen better for certain types of investors, as consolidated operating margins will be expanding noticeably.
- Based solely on the reclassification, we are increasing our non-GAAP EPS estimates for 2014, 2015, and 2016 from $55.00, $65.23, and $76.40 to $57.04, $67.22, and $78.02.
Valuation
We are increasing our price target for Google Inc (NASDAQ:GOOG) slightly from $1,370 to $1,400. Our new target is based on 21x (unchanged) our slightly higher 2015 non-GAAP EPS estimate of $67.22 (up from $64.04).
