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Google Inc: Assessing Resistance Levels and Price Targets $goog

Over the past few day’s Google Inc. (NYSE:GOOG) has cleared significant overhead resistance. The resistance level that Google cleared was $1,040.00 per share. Using the Discounted Cash Flow valuation method, I will calculated the next resistance level to create a short-term price target. Also using the DCF method, I will assess the downside risk if the stock drops below the $1,040 resistance price level.

The Discounted Cash Flow valuation relies heavily on the company’s operating income, tax’s paid, depreciation & amortization as well as the EBITDA or earnings before interest, taxes and depreciation & amortization to create a stock price target.

Establishing a resistance level

As the DCF calculation below indicates Google Inc. traded at 20x EBITDA to create a resistance level of ~$1,040.00 per share.

FY 2011 FY 2012 2013 TTM
Operating Income

11,742

12,760

13,438

Taxes

2,589

2,598

2,255

Unlevered Net income

9,153

10,162

11,183

D&A

1,851

2,962

3,856

EBITDA

13,593

15,722

17,294

Free Cash Flow

11,127

13,346

11,967

WACC

6.53%

Terminal Value  20X EBITDA

345,880

Total Cash Flow

11,127

13,346

382,320

Net Present Value

$338,440.89

Total Debt

5,537

Cash and Cash Equivalents

14,778

Net Debt

9,241

Equity Value

$347,681.89

Shares Outstanding

334.16

Resistance Level

$1,040.47

 

Creating the Next Price Target

By increasing the EBITDA from 20X to 21X this will create the next resistance level or next target price before the next earnings are released. Increasing the EBITDA to 21X will increase the terminal value thus creating a new target.

 

FY 2011 FY 2012 2013 TTM
Operating Income

11,742

12,760

13,438

Taxes

2,589

2,598

2,255

Unlevered Net income

9,153

10,162

11,183

D&A

1,851

2,962

3,856

EBITDA

13,593

15,722

17,294

Free Cash Flow

11,127

13,346

11,967

WACC

6.53%

Terminal Value  21X EBITDA

363,174

Total Cash Flow

11,127

13,346

399,614

Net Present Value

$352,745.62

Total Debt

5,537

Cash and Cash Equivalents

14,778

Net Debt

9,241

Equity Value

$361,986.62

Shares Outstanding

334.16

Price Target

$1,083.27

Based on the current price of $1,058.00 per share, I believe there is currently 2.36% upside in the short term.

Creating a Downside Target Price

By decreasing the EBITDA from 20X to 19X this will create the downside resistance level. If the stock breaks $1,040.00 resistance level the next level for the stock should be the price listed below. Decreasing the EBITDA to 19X will decrease the terminal value thus creating a downside target price.

FY 2011 FY 2012 2013 TTM
Operating Income

11,742

12,760

13,438

Taxes

2,589

2,598

2,255

Unlevered Net income

9,153

10,162

11,183

D&A

1,851

2,962

3,856

EBITDA

13,593

15,722

17,294

Free Cash Flow

11,127

13,346

11,967

WACC

6.53%

Terminal Value 19X EBITDA

328,586

Total Cash Flow

11,127

13,346

365,026

Net Present Value

$324,136.16

Total Debt

5,537

Cash and Cash Equivalents

14,778

Net Debt

9,241

Equity Value

$333,377.16

Shares Outstanding

334.16

Downside Risk Level

$997.66

 

Based on the DCF valuation model, If the stock breaks the 1,040.00 level, then the level is ~$997.66 per share. This represents a 6.12% downside risk level from today’s price of $1,058.00.

 Google Inc: Assessing Resistance Levels and Price Targets $goog

 

As Google Inc.’s stock recently broke through a significant resistance level to the upside the DCF method indicates that the next level for the stock is ~$1,083.27. This represents ~2.36% upside in the short term. Assessing the downside risk, if the stock breaks the $1,040 level then the downside risk drops to ~$997.66 creating a risk level of ~6.12%.

Based on the information listed above the short-term price target for Google Inc. is ~$1,083.27.

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