How Will Yahoo! (YHOO) Stock React to This U.S. Government Fine News?

NEW YORK (TheStreet) -- Shares of Yahoo! YHOO rose 1.32% to $41.80 in morning trading Friday one day after the Internet company announced the U.S. government threatened to fine it $250,000 a day in 2008 if it did not comply with an NSA request.

The secret legal struggle took place in 2008, but Yahoo! made the news public Thursday after a federal court unsealed 1,500 pages of legal documents regarding a formerly classified court case about the breadth of NSA surveillance programs.

The documents did not say precisely what the government wanted from Yahoo!, according to the Wall Street Journal. The company says in part of the documents that the central issue of the case was whether the Constitution protects the communications of U.S. citizens or legal U.S. residents who could be outside the country. Portions of the documents were redacted even after they were unsealed, including the number of requests the government made of the Internet company.

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Separately, 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 multiple 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, reasonable valuation levels, solid stock price performance, good cash flow from operations and expanding profit margins. 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 2.99, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $357.41 million or 8.03% when compared to the same quarter last year. Despite an increase in cash flow, YAHOO INC's average is still marginally south of the industry average growth rate of 17.66%.
  • Compared to its closing price of one year ago, YHOO's share price has jumped by 39.61%, 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.
  • The gross profit margin for YAHOO INC is currently very high, coming in at 83.10%. Regardless of YHOO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YHOO's net profit margin of 24.87% compares favorably to the industry average.
  • You can view the full analysis from the report here: YHOO Ratings Report

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