SUNNYVALE, Calif. (
) -- Shares of Internet giant
(YHOO - Get Report)
will bask in the warm afterglow of the company's recent
(MSFT - Get Report)
, offering plenty of upside to investors. This is the message from analyst firm Jefferies & Company, which raised its Yahoo! price target Tuesday, citing the benefits of the
"Despite the recent run-up in Yahoo! shares, we find the valuation still attractive as it fails to fully reflect accretion from the Microsoft deal, potential upside from Asian assets and rebound in display [ads]," wrote Jefferies analyst Youssef Squali, in a note released Tuesday. "Shorter-term, management's focus on core priorities and cost should bode well for stock."
Jefferies raised its Yahoo! price target from $20 to $23, assuming the deal closes by the end of 2010. Yahoo!'s shares have risen more than 35% in the last six months, although Squali feels that the company's stock is still undervalued.
Under the terms of the 10-year pact, Yahoo! will use Microsoft's
search engine and collect 88% of the advertising revenue for the first five years of the deal.
Seen as something of a
by Microsoft in its attempts to challenge
(GOOG - Get Report)
, Squali predicts that the agreement will also help Yahoo! expand its margins.
Yahoo! also launched a $100 million
campaign recently, a key part of CEO Carol Bartz's efforts to reposition the company. This, however, was not factored into Jefferies' estimates, although Squali sees the move as a positive.