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Google co-founder Larry Page must prove that his aloofness, rebellious streak and affinity for pursuing wacky ideas won’t alienate investors and lead the company astray. He’s taking over amid emerging threats from rapidly growing rivals and more vigilant regulators alike. (Virginia Mayo/AP)
Google co-founder Larry Page must prove that his aloofness, rebellious streak and affinity for pursuing wacky ideas won’t alienate investors and lead the company astray. He’s taking over amid emerging threats from rapidly growing rivals and more vigilant regulators alike. (Virginia Mayo/AP)

Eye on Equities

Big upside seen for out-of-favour Google Add to ...

Google Inc. shares have been struggling to gain latitude this year amid mounting concerns about regulatory scrutiny over its search business, spending increases and management changes.

Yet, analysts have considerable conviction that a rebound is coming. According to Zacks Investment Research, 31 analysts rate Google as a "strong buy," five rate it as a "buy" and only three rate it as a "hold" No analysts in the Zacks data base rate it as a "sell." Meanwhile, the median target price on the stock is $750 (U.S.), according to 29 estimates compiled by Capital IQ - and the lowest target price of those analysts is $609, above where it's currently trading.

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The company will be in the spotlight a week from today when it releases quarterly results, and Canaccord Genuity analyst Heath Terry thinks Google will leave analysts red faced that they weren't even more bullish.

"We believe results next week should come in well above current consensus estimates on accelerating growth in traffic to the site and improvements in monetization, particularly in the display business," Mr. Terry said in a note today. The Street is looking for first-quarter earnings per share of $8.13, up from $6.76 a year ago.

He believes strengthening fundamentals will win out against the recent concern that's been hanging over the stock, and raised his 2011 and 2012 sales estimates by $1.1-billion and $826-million, respectively. He's encouraged by strengthening traffic trends, particularly in search, as well as accelerating growth in YouTube and evidence of increasing demand in Google's display segments.

And then there's the company's valuation. At 14 times estimated 2012 earnings per share, that's well below the peer group at 19.7 times, despite above-average growth, Mr. Terry notes.

Upside: Mr. Terry rates Google a "buy" with an $800 target price.

Canadian Tire Corp. shares were punished this week after reports emerged that new competitor Target aims to generate $6-billion in Canadian sales over about seven years. But UBS analyst Vishal Shreedhar suggests investors may have overreacted to the news, given that Target's market share gains will be incremental and moderate in key sales categories. Plus, other retailers - such as Wal-Mart and Costco - have arguably more overlap in certain market segments, he said.

Upside: Mr. Shreedhar reiterated his "buy" rating and $74 price target.

While Onex Corp.'s proprietary investments support its current stock price, the value of its growing asset management business seems unrecognized in the marketplace, said Canaccord Genuity analyst Scott Chan. He believes the improving private equity market and Onex's 26-year track record of prosperous investing bode well for the company.

Upside: Mr. Chan initiated coverage with a "buy" rating and $41 12-month target price. He added that at least four of Onex's private investments - Allison Transmission, Husky International, The Warranty Group, and TMS International - could be monetized through an initial public offering, which could add 17 per cent upside to his target price.

While Legacy Oil + Gas Inc. has a great inventory of oil plays, both in development and exploration stages, "the market seems to have gotten ahead of itself in the past" and attributed too much value to the company's relatively unproven exploration potential, said CIBC World Markets Inc. analyst Adam Gill. While cautious about paying too much for the exploration plays, given very limited well results, he said valuation is now much more reasonable as the stock has come off its highs.

Upside: Mr. Gill raised his price target by $2.50 to $19.50 and upgraded the stock to a "sector outperformer."

FirstService Corp. shares are up more than four-fold over the past two years and are now at valuations not seen since the "frothy days" of 2007, said Raymond James Ltd. analyst Frederic Bastien. Though Mr. Bastien still views long-term prospects favourably as the company focuses on real estate services, he feels "it's time to take a breather on FirstService."

Downside: Raymond James downgraded the stock to "market perform" from "outperform" but raised its target price by $3 to $39 (U.S.).

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