Risk-reward on Google stock ‘favorable,’ says Wolfe By Investing.com

Analysts at Wolfe Research said Thursday that they believe the risk-reward profile of Google (NASDAQ: ) stock at its current valuation is “favorable.”

The remarks come in the wake of GOOGL’s recent underperformance, driven by growing concerns over the two Department of Justice (DoJ) cases, which analysts believe “is largely priced in.”

Wolfe recently shared his perspective on the potential fallout from the recent antitrust ruling in a note published in early August.

Among the potential remedies, company analysts see the most likely scenarios as 1) implementing choice screens and 2) Apple entering into a distribution agreement with a competitor, possibly Bing, that would become the default search engine.

They said their “positive view” on Google’s stock is based on four key factors:

First, in the choice screen scenario, their core analysis suggests a 10% upside to consensus earnings per share (EPS) estimates and more than 35% upside to the current share price.

Second, even in a severe scenario where Apple changes its default search engine and Google loses 20% of its market share, analysts project only a 5% downside to consensus EPS and a decline of about 12% of the share price.

Third, changes in Google’s network business are expected to have little effect on underlying EPS.

Finally, Wolfe points out that T3 Search revenue could beat expectations, despite fears of a modest miss.

The investment firm also notes that Google stock currently trades at 18x ​​EPS, compared to the Meta (NASDAQ: ) at more than 20x and the S&P 500 at 21x.

“Google shares may not be revalued to 20x+ any time soon due to DoJ overhang, but we believe downside support is close to current levels and upside potential is much higher, especially if Google’s Q3 earnings through print + Searches are better than we hoped,” the analysts wrote.

Google shares are up about 12% this year, underperforming the broader market.