Edgemoor Investment Advisors recently published its Q4 2017 investor letter in which the investment management firm shared its detailed analysis of three securities including Alphabet Inc (NASDAQ:GOOG). Edgemoor believes that Alphabet is in a strong financial position and the company’s stock looks to be an attractive long-term investment. In this article, we’re going to take a look at Edgemoor’s analysis of Alphabet, which is the parent company of the world’s most popular internet search engine Google.
In the letter, Edgemoor said that Alphabet’s “revenue growth has averaged nearly 18% annually for the last three years and topped 24% year-over-year in the third quarter of 2017. This growth has been driven by substantial increases in both desktop and mobile advertising revenue, which together account for 87% of total company revenues.”
The investor believes that, in addition to the search engine, Alphabet’s software – Gmail, YouTube, Google Maps, Google Earth, and Google Play – are its very important assets.
In addition to search, the company’s array of internet services includes Gmail, YouTube, Google Maps, Google Earth, and Google Play, as well as the Chrome internet browser and the mobile Android operating system, which powers an estimated 75% of smartphones around the world. We believe these core assets provide a cohesive, end-to-end experience for consumers and, most importantly, drive internet advertisers to Google sites.
As the online advertising market has matured, advertisers have increasingly consolidated their spending around companies like Google with broad platforms, a vast user base, and unique assets. Consumers use Google products almost habitually (an estimated 90% of all mobile searches are performed on the Google platform), creating a switching cost based on familiarity and not just technology, which we believe will continue to protect the company’s online dominance and fuel growth.
Further, Edgemoor likes Alphabet’s engagement in emerging technologies, including enterprise cloud services, artificial intelligence, and autonomous vehicles. The investment firm believes that the company’s investment in these technologies could drive growth for decades to come.
Talking about the company’s financial outlook, Edgemoor said:
Alphabet’s financial position is currently as strong as its market presence. The company should generate a record $107 billion of revenues in 2017, an increase of 19% over 2016. Alphabet also generates approximately $25 billion of free cash flow annually and held $100 billion of cash and marketable securities at September 30, 2017. We believe the balance sheet is solid, with just $4 billion of long-term debt and over $150 billion of total shareholder equity.
Here are the investor’s comments about Alphabet’s stock:
At 24 times estimated 2018 earnings, Alphabet stock trades at a premium to the S&P 500 average of 19 times, but it trades closer to that average when adjusted for the company’s large cash position. Furthermore, we believe the company’s higher than average growth prospects and strong competitive advantages justify a premium and make Alphabet stock an attractive long-term investment.
Alphabet Inc (NASDAQ:GOOG) is one of the most popular stocks among active manager and hedge funds. As of the end of December 2017, there were 124 hedge funds in Insider Monkey’s database with GOOG in their portfolio. Among those funds are Foxhaven Asset Management, Cat Rock Capital, and Thunderbird Partners.
Shares of Alphabet are up 8.77% since the beginning of this year. Whereas, the stock price has increased nearly 35% over the past 12 months. GOOG has a ‘Buy’ rating with a consensus average target price of $1,281, according to analysts polled by FactSet. On Wednesday, shares were trading at $1,138.17 in the pre-market trading session.
Meanwhile, Alphabet appears to be interested in disrupting the healthcare space. The tech giant, according to a new report by Ernst & Young, filed 186 healthcare patents between 2013 and 2017, Beckers Hospital Review reported.