A week ago, Alphabet Inc. (NASDAQ:GOOG.L) came out with a strong set of third-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 7.7% to hit US$46b. Alphabet also reported a statutory profit of US$16.40, which was an impressive 46% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Alphabet after the latest results.
After the latest results, the 35 analysts covering Alphabet are now predicting revenues of US$212.8b in 2021. If met, this would reflect a major 24% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to swell 15% to US$60.00. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$208.7b and earnings per share (EPS) of US$57.00 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target rose 6.2% to US$1,859, suggesting that higher earnings estimates flow through to the stock's valuation as well. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Alphabet at US$2,250 per share, while the most bearish prices it at US$1,237. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that Alphabet's rate of growth is expected to accelerate meaningfully, with the forecast 24% revenue growth noticeably faster than its historical growth of 18%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 16% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Alphabet is expected to grow much faster than its industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Alphabet's earnings potential next year. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Alphabet. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Alphabet going out to 2024, and you can see them free on our platform here..
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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