"While Yahoo continues to lose U.S. online ad share (from 7% in 2013 to 6.2% in 2014E and 5.6% in 2015E), we are upgrading Yahoo based on Alibaba and tax upside potential," analysts said.
"While we were bullish on Alibaba for most of 2015, post IPO we thought that it could take a year or longer to get visibility on potential tax savings of Yahoo's remaining stake in Alibaba and that Yahoo could trade at a sum-of-parts discount to asset value," analysts continued.
"However, Yahoo's CFO recently indicated that there is no change to company's stance on being optimistic on finding a promising tax solution and that Yahoo would communicate its plans by the next earnings call at the latest (expected in late January 2015)," analysts added.
Additionally, analysts justified slightly higher core multiple (6.5x multiple, up from 5.5x) to reflect improvement in the core business outlook and recent wins and acquisitions (Mozilla, Bright Roll acquisition).
Shares of Yahoo are up 1.39% to $51.11 in pre-market trading.
Separately, TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation: