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Alphabet (GOOGL) is under intense scrutiny as the U.S. Justice Department takes the company to court. The U.S. government’s antitrust case against Alphabet targets the company’s search business, which the Justice Department alleges maintains a monopoly by paying rivals to make its search engine the default search on web browsers. The U.S. wants Alphabet to change its business practices, potentially pay damages, and restructure itself.
The case against Alphabet is the most serious case against a mega-cap technology company since the U.S. antitrust lawsuit against Microsoft (MSFT) in the 1990s. The trial began late last month and is expected to last ten weeks. Despite the headwinds of the antitrust trial, shares of Alphabet have been resilient, recently outperforming Apple (AAPL) and Amazon.com (AMZN). Alphabet shares have soared 50% this year and are less than 5% below September’s 1-1/2 year high, while Apple and Amazon are down more than -12% from their recent peaks.
Estimates for Alphabet’s revenue and profits have moved higher on recovering demand for digital advertising. According to Bloomberg, analysts’ projections for 2024 profit have risen nearly 8% in the past three months, while sales estimates are up almost 2%. Also, Alphabet’s valuation is not as extreme as its mega-cap tech peers as its shares trade at less than 20 times estimated earnings, a discount to the Nasdaq 100 Stock Index ($IUXX) (QQQ), and below the stock’s average multiple over the past ten years. In contrast, the valuations of Apple and Microsoft are at premiums to the market and their own history.
With its attractive valuation, some analysts believe now Is the time to buy Alphabet stock. Manulife Investment Management said, “Ultimately, Alphabet offers premium earnings growth, a very strong capital return profile, a lot of visibility, a very strong market position, and it is a leader in artificial intelligence (AI). Yet, its valuation is in line with the S&P 500 ($SPX) (SPY). That makes it incredibly attractive and very compelling here.”
Manulife Investment Management believes the antitrust suit against Alphabet is unlikely to impair its business, and even in a worst-case scenario where the Justice Department wins and Alphabet is broken up, the stock could still benefit. Manulife Investment Management said, “Alphabet trades incredibly well on a sum-of-the-part basis, and the stock doesn’t reflect the value of all of its businesses. If it were ever broken up, investors would be very excited to get their hands on the company’s individual parts.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
