MKM’s Rohit Kulkarni is still bullish on Alphabet, it would suffer ‘less worse’ impact from an economic slowdown than peers
Shares of Alphabet Inc. slumped Monday, with MKM Partners analyst Rohit Kulkarni saying the impact of an economic slowdown could offset the benefits from the long-waited stock split taking effect.
The internet giant’s more active Class A stock GOOGL, -2.46% dropped 2.5% to close at $109.03, reversing an earlier intraday gain of as much as 1.7%, while the Class C shares GOOG, -2.53% shed 2.5% to $109.91.
“[S]tock splits do not change our fundamental outlook, however, we believe [Alphabet] shares could benefit in several ways (more retail participation, greater liquidity via options, likely index inclusion and management signaling shareholder friendliness),” Kulkarni wrote in a note to clients.
The 20-for-1 stock split, which was first announced on Feb. 1, took effect after Friday’s closing bell. The Class A shares were recently trading at $109.30, compared with Friday’s split-adjusted closing price of $111.78 (pre-split $2,235.55).
But while Kulkarni reiterated his buy rating, he trimmed his earnings and revenue estimates, and cut his split-adjusted price target to $140 from $165 ($3,300 pre-split).
“We believe there are several reasons shy Google should have ‘less worse’ impact from a macro slowdown vs. peers and prior slowdowns,” Kulkarni wrote. “However, given greater online penetration today vs. prior recessions, we believe all Internets would be hit harder this time vs. prior slowdowns as secular growth may not be sufficient enough to mask cyclical slowdown.”
The company is scheduled to report second-quarter results on July 26.
Alphabet’s more-active Class A shares have dropped 24.7% year to date, while the Class C shares have lost 24.0%. In comparison, the SPDR Technology Select Sector exchange-traded fund XLK, -0.97% has slid 24.6%, the SPDR Communication Services ETF XLC, -0.51%, of which Alphabet was a components, has shed 29.0% and the S&P 500 index SPX, -0.84% has declined 19.6%.