S&P downgrades Google stock, cuts price target from $700 to $500 and makes it a sell rather than a buy.

pd August 16, 2011 0
S&P downgrades Google stock, cuts price target from $700 to $500 and makes it a sell rather than a buy.

The US federal government and Google have something in common.  They have both been downgraded by Standard & Poor’s.  You remember S&P, in 2007 they they rated  AIG and other highly questional real estate bonds – triple A.

Shares of Google were down more than 3 percent today to $539.

Of course, being downgraded by the ratings agency that famously whiffed on highly questionable real estate bonds might be considered a badge of honor in some circles. But the move by S&P does point to considerable market fears about Google’s gutsy decision to buy Motorola Mobility for $12.5 billion.

S&P equity researchers downgraded Google stock today to a “sell” from a “buy” and lowered the price target to $500 from $700.

David Drummond, chief legal counsel for Google, had said that buying Motorola Mobility and its patents could protectAndroid from intellectual-property lawsuits. Apple, Oracle, and others have sued either Google or its partners in recent months in an attempt to slow down their competitors and extract licensing fees.

S&P equity analyst Scott Kessler disagreed.  “After further consideration of GOOG’s plans announced yesterday to purchase Motorola Mobility (MMI 38, Hold), we see greater risk to the company and stock. We expect the transaction to be consummated next year, but later than early ’12, which GOOG indicated,” Kessler wrote in a research note cited in a Wall Street Journal report.  “Moreover, despite MMI’s extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues. We also believe the purchase of MMI would negatively impact GOOG’s growth, margins and balance sheet. Based on revised DCF analysis, we are cutting our 12-month target price to $500 from $700.”

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