Alphabet Inc Upgraded by Pivotal Research, But That’s (Still) Not the Point (GOOG, GOOGL)

A week ago, yours truly came to the defense of Alphabet Inc (GOOG, GOOGL) following a lowered price target on the company’s stock.

Alphabet Inc Upgraded by Pivotal Research, But That's (Still) Not the PointCitigroup said it was worth a little less than it had previously suggested, and I said Citigroup’s slightly lowered opinion of Google stock — well, Alphabet stock — was irrelevant, rooted more in simply making some noise than steering investors clear of a troubled trade.

My intent at the time was to let it go at that, preaching my sermon about how opinions are like a well-known body part, and moving on. As providence would have it though, the fickleness of analysts was underscored again today, with that very same Alphabet again making my point.

Alphabet Upgraded

Long story made short, Pivotal Research has upgraded Alphabet from a “hold” to a “buy.” Pivotal analyst Brian Wieser also raised his target price target on GOOGL from $800 to $970, explaining:

“The company’s hegemonic position in digital advertising alongside Facebook is fundamentally unchanged, and we continue to expect Google to sustain double digit growth rates in advertising on an ongoing basis. The factors which were cited as supporting growth last quarter – including YouTube and programmatic display-related revenues associated with GDN – will undoubtedly continue. New initiatives such as Google’s launch of the Google Analytics 360 Suite and its new investments into marketing technology (which we distinguish from its pre-existing dominance in advertising technology) illustrate ways in which Google will be increasingly well-positioned to capture a growing share of marketers’ spending across its advertising products over time.”

In other words, Google continues to be an advertising-revenue juggernaut.

For the record, Wieser still likes peer and rival Facebook Inc (FB) better, and he likes struggling Twitter Inc (TWTR) too, at least partially tainting Pivotal’s new opinion of GOOGL.

It’s this decision to put Alphabet and Twitter, in fact, that underscores my original message from a week ago … take everything analysts say about a high-profile stock with a grain of salt. Instead, look to the collective opinion.

If You Don’t Like the Weather…

The Pivotal Research upgrade certainly validates current GOOGL owners who were less than pleased with last week’s call from Citigroup. By that same token, however, it’s too soon to pop the cork on the champagne bottles.

Every state of the union has adopted the cliche as its own — if you don’t like the weather in [insert your state here], just wait five minutes because it will change.

The analyst community is the same way. That is, for a highly watched stock, new and differing opinions are always being offered. Each one in and of itself should arguably be ignored. All of them in the aggregate, however, should be heeded.

Sometimes it’s referred to as the jellybean effect, in reference to how it’s usually observed in action.

Often as fundraisers for PTAs and civic organizations or giveaways for local business, company picnic, etc, individuals are asked to guess how many jellybeans are in a jar. Rarely does anyone guess the exact number. Indeed, it’s odd for one guess to even be close. The average of all the guesses, however, is astonishingly close to the right number, and the more guesses submitted, the closer the average guess tends to be to the actual numbers of jellybeans in the jar.

Analyst opinions are not unlike guessing the number of jellybeans in a jar. That is, one of them may or may not be accurate. All of them in the aggregate, however, do indeed make for a good prediction of whether or not Google stock is a good buy, and what it’s theoretically worth.

In other words, for the same reason Citigroup’s take from last week was irrelevant on its own [which was more of a “less-bullish” than a “bearish” view, by the way], today’s upgrade shouldn’t be viewed as a trophy.

Bottom Line for GOOGL

Analyst opinions, estimates for GOOGL stock
Click to Enlarge
With that as the backdrop, we once again revert back to the bigger analyst picture for Alphabet to get a grip on what it’s plausibly worth, and whether or not it’s worth owning. The graph to the right tells the tale. Of the 51 analysts currently tracking it, they rate it a pretty solid “strong buy,” and suggest GOOGL is worth $930 per share. Also note that average target price will likely be raised before the stock ever actually reaches it.

It’s also worth noting the target price is in a respectable uptrend. Pivotal Research’s upgrade is only a drop in that bucket, however.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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