Analysts see 'new era' for Google shareholders

Published Tue, Jul 28 20152:25 PM EDT

After going nowhere for all of 2014 and the first half of 2015, analysts became accustomed to not expect much from Google 's stock and the company's free-spending ways. That changed this month when the search giant's second-quarter earnings blew away Wall Street estimates and the stock surged 16 percent in a single day to a record high. Analysts were so impressed by the earnings report, they not only raised their forecasts, but began throwing around big talk like "dawn of a new era" for the company. Here's why... Google's stock has given up a lot of its earnings-related surge with the shares down 6 percent in the eight trading days since the report. This could give investors a good entry point if these analysts are correct. "We think this could be the dawn of a new era for shareholders. Google is showing investors that its management team (even pre-Ruth Porat) cares deeply about its stock price and talent retention," wrote Ross Sandler of Deutsche Bank, who raised his 12-month price target after the results to $780, or 19 percent from here. On the growth side, U.S. revenue jumped by 16 percent last quarter, an acceleration from a 12 percent rate in the first quarter. YouTube watch time surged 60 percent year over year, the fastest growth in two years. But most importantly to investors and these analysts, Google increased the non-GAAP operating margin to 34 percent from 32 percent a year ago. Read More China's in a bear market. What else is new? And they expect that to continue to improve under the company's new CFO, Ruth Porat, formerly finance chief at Morgan Stanley. "We think that solid expense control and discussion of disciplined capital allocation going forward were the more material drivers of the stock gains," wrote MKM Partners' Rob Sanderson. "We think the stock will be revalued higher on a more shareholder friendly discipline in this next era of GOOGL's development." Sanderson initiated Google with a "buy" rating and slapped a $805 price target on the stock, the highest on The Street. The market is full of old, no-growth dinosaurs like Intel, IBM and Hewlett-Packard, but with Google's dominant secular growth franchises in search, mobile, YouTube and Android, and now credible cost controls, the share gains may have more to go.

An employee walks through the lobby of Google's Washington, D.C., headquarters.

Getty Images

After going nowhere for all of 2014 and the first half of 2015, analysts became accustomed to not expect much from Google's stock and the company's free-spending ways.

That changed this month when the search giant's second-quarter earnings blew away Wall Street estimates and the stock surged 16 percent in a single day to a record high.

Analysts were so impressed by the earnings report, they not only raised their forecasts, but began throwing around big talk like "dawn of a new era" for the company.

Here's why...