Google Upgraded to Buy

S&P expects the search outfit's ad-pricing momentum to continue in 2005. Plus analysts' opinions on Sun Micro and Verizon

Google (GOOG ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Scott Kessler

We think pricing for Google's ads improved notably in the fourth quarter, and we expect this momentum to continue in 2005. Our revised discounted cash-flow analysis, including a reduced discount rate calculation, has caused us to increase our 12-month target price to $230 from $190. Based on our estimates, we think the stock's p-e of 53 and p-e-to-growth also are not unreasonable. Google has been in a broad trading range since November, 2004, and is below recent highs. Although a lock-up expiration of a substantial number of shares looms in mid-February, we believe risk-reward considerations warrant purchase of the stock.

Sun Microsystems (SUNW ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

Sun Microsystems posted December-quarter earnings per share of 1 cent, vs. a loss per share of 3 cents, compared with our breakeven estimate. Revenues fell 1.6% on an adverse mix and weaker storage sales, but were slightly above our projection. Gross margin was also ahead of our model, but against September-quarter's progress on expense discipline, selling, general, and administrative expenses and research and development expenses were both above our model though down from a year ago. We are raising our fiscal 2005 (ending June) earnings per share estimate by a pennny, to 2 cents. At a price/sales of 1.3 times, in line with peer average, and with the company's plans to put cash/investments of $7.5 billion to work, we believe Sun Microsystems is worth holding.

Verizon Communications (VZ ): Reiterates 5 STARS (strong buy)

Analyst: Todd Rosenbluth

We expect Verizon to report fourth-quarter earnings per share of 65 cents, vs. 58 cents on Jan. 27. We see fourth-quarter revenues rising 7%, driven by continued market share gains at Verizon Wireless. Within wireline, we expect that lines losses were largely offset by growth in the long distance and DSL customer bases. We believe that, unlike weaknesses at peers, Verizon's EBITDA margins widened. Given our expectation of wider margins and a strong wireless offering, we contend that the shares deserve to trade at a premium to Bell peers. We believe the recent sell-off is unwarranted and our 12-month target price remains $47.

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