NEW YORK (TheStreet) -- Yahoo (YHOO) shares are down -0.9% to $34.51 on Tuesday after being downgraded by two different ratings firms after Chinese search engine Alibaba -- of which Yahoo owns a 22.5% stake -- reported first quarter earnings below analysts estimates.
Analysts at CRT lowered their price target on Yahoo's shares to $41 from $45, while analysts at Raymond James (RJF) lowered its price target to $40 from $43.
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TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate YAHOO INC (YHOO) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, solid stock price performance and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Although YHOO's debt-to-equity ratio of 0.09 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.20, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for YAHOO INC is currently very high, coming in at 83.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.50% is above that of the industry average.
- Compared to its closing price of one year ago, YHOO's share price has jumped by 42.06%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- YAHOO INC's earnings per share declined by 17.1% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, YAHOO INC reported lower earnings of $1.26 versus $3.28 in the prior year. This year, the market expects an improvement in earnings ($1.64 versus $1.26).
- YHOO, with its decline in revenue, underperformed when compared the industry average of 21.3%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: YHOO Ratings Report