BMO Capital Raises Google PT To $770, Says It's 'More Of A Value Stock'

Daniel Salmon, BMO Capital Markets equity research analyst, was on CNBC Friday to discuss Google Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)'s exceptional performance in the second quarter and where the stock goes from here. Here is what he said.

Controlling Costs

"Well, I think the story at Google was coming together before Ruth (Ruth Porat, CFO at Google) had her first call obviously last night," Salmon began. "The message was about cost control, cost discipline, focusing investments on key growth areas. I think that had been emerging a little bit already, but clearly last night it crystallized."

Related Link: Google Soars On Q2 Results, Analyst Reactions Are Mixed

Reasonably Valued Stock

On his outlook for the stock, Salmon said, "Well, I think investors wanted to own this stock. It's obviously a much more reasonably valued stock versus a Facebook, which has a much higher multiple. Obviously, after this type of move, we have got to sit back and ask ourselves, 'What are the revenue growth opportunities?' 'Where can the estimates go?'

"And, I think in the near term, really, that's about the cost side and seeing where people think those margins can expand to over the short term. I think the stock can continue to move up on that alone, but at that point, we'll have to sit back and reexamine where the revenue growth is at that point."

PT Increased To $770

Salmon was asked if he is comfortable with the multiples at which Google currently trades. He replied, "If you look at Google, it's, again, different from Facebook, which is clearly a growth stock. Google is much more of a value stock. And for me, I look at where it trades against the market multiple and against its EPS growth rate.

"So, our target, we moved to $770 this morning. That implies about a 1.2 times P/E-to-growth rate; that's clearly on an acceleration that's happening here in 2016," Salmon concluded.

Image Credit: Public Domain