Why Alphabet Must Blow Away Its Earnings Report

Print Email

The year 2018 has gotten off to a great start. Earnings season is delivering some serious winners for investors, and companies are generally raising guidance on the heels of tax reform, overseas capital repatriation, immediate expensing, accelerated earnings and economic growth. With the S&P 500 rising over 19% in 2017, it was last seen up over 7% so far in 2018, and that’s with the first month not even fully over.

Investors know that it’s a raging bull market and they need to own some of the best-performing stocks. The problem that is surfacing is that some companies have seen their stocks rise to the point that they may now be priced for perfection. And if a company hasn’t yet reported earnings, that means that it has to beat earnings expectations, talk up their guidance and talk about tax reform and the broader economic climate are set to benefit them in the years ahead.

Alphabet Inc. (NASDAQ: GOOGL) is one such company that will have to have a great quarterly earnings report and positive conference call. It was recently featured (along with Netflix, which did deliver big) as one of 10 tech giants getting the most upgrades ahead of earnings, which we deemed as Wall Street saying “You better please us, or else …”

Alphabet shares have hit new high after new high, and now the market cap has peaked above $817 billion, since its stock is up more than 12% so far in 2018. That is handily above the market’s strong gains.

The online search, advertising and content giant is set to report earnings on February 1, and analysts seem to be unable to get enough of their price target hikes ahead of earnings. This sets a must-win climate for the company we all used to call Google.

Alphabet’s quarterly consensus estimates are $0.92 in earnings per share and $34.87 billion in revenue. Unlike many companies, Alphabet does not release guidance for the quarters ahead. It also has joined the companies with $100 billion in cash and investments, much of which can be repatriated now. As far as tax rates themselves, the last forecast by Thomson Reuters was that Alphabet’s 2017 tax rate would be 18.2%, down from 19.3% in 2016. The company is already in many tax jurisdictions and is as much of a global company (or more) as it is a domestic one.

24/7 Wall St. has tracked numerous key Alphabet analyst upgrades and price target hikes seen since the start of the year:

  • Monnes Crespi Hardt (Buy) raised its target price to $1,250 from $1,120 on December 29.
  • Deutsche Bank (Buy) raised its price target to $1,400 from $1,225 on January 29.
  • KeyBanc Capital Markets (Outperform) raised its target to $1,280 from $1,150 on January 19.
  • MoffettNathanson raised its price objective from $1,175 to $1,275 on January 17.
  • SunTrust Robinson Humphrey (Buy) raised its target to $1,250 from $1,180 on January 12.
  • Morgan Stanley (Overweight) raised its target to $1,210 from $1,150 on January 12 as well.
  • Cowen (Outperform) raised its price target to $1,230 from $1,150 on January 4.

Alphabet shares were last seen trading at 1,186.48, compared to a consensus target price of $1,216.28. That target was closer to $1,178 just 30 days earlier and to $1,104 just 90 days ago. Alphabet’s 52-week range is $812.05 to 1,198.00.