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Wall Street analysts still gaga over Google

Love affair continues despite the search giant missing earnings estimates, suffering 19 percent share price drop.

Wall Street largely continued its love affair with Google on Wednesday, despite the search giant missing its fourth-quarter earnings estimates and suffering a 19 percent share price drop in after-hours trading.

A handful of analysts increased their first-quarter and fiscal 2006 earnings estimates for Google, while all but one of seven analysts issuing research notes maintained their "buy" recommendation on the search giant.

"Missing one quarter has a short shelf life, especially since they are fundamentally growing and expanding their profits each quarter," said David Dropsey, a research analyst at Thomson Financial. "The people who are trading in Google care about its future earnings."

Six out of 32 analysts have updated their earnings estimates for Google, bumping up their forecast to $2.06 a share for the first quarter from $2, according to Dropsey. And for its fiscal year, analysts now expect the company to generate $8.98 a share--up from previous estimates of $8.79.

"Based on the fourth-quarter performance, we are raising our forward estimates," Prudential Equity Group analysts stated in their research note, hiking their fiscal-year estimates up to $9.31 a share from $8.81. The research firm also bumped up its 12-month price target for Google to $500 a share from $400.

Google shares closed at $432.66 during regular trading on Tuesday, with its stock falling as much as 19 percent in after-hours trading following its disappointing earnings report. When the regular trading session opened Wednesday, Google shares traded down 9.22 percent to $392.75 a share in early morning trading.

One analyst, meanwhile, lowered his earnings forecast and downgraded his recommendation for the company.

"We're downgrading Google primarily because of concerns about weaker-than-expected international revenue growth," said Ben Schachter, a UBS Securities analyst. "I think they are investing heavily in that area, and that is the right thing for the company in the long term. But in the near term, it will put pressure on its margins for the next couple of quarters."

Schachter lowered Google's fiscal 2006 estimates to $8.36 a share from $9.40 a share and downgraded his recommendation to "neutral 2" from a "buy 2." He also lowered his price target to $425 a share from $500.

Despite the lower forecast, Schachter said he does not view Google as a "broken" company. He expects the company to continue with its rapid growth, though in the near term, he said, its new advertising channels may take longer to develop.

Analysts at Banc of America Securities have a different view on the prospects of the search industry, especially in light of Yahoo recently missing analysts earnings estimates.

"Google's results, in conjunction with Yahoo's fourth-quarter results, suggest that the search industry growth is slowing somewhat," according to a Banc of America Securities report.