"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:
"We rate YAHOO INC (YHOO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 2183.5% when compared to the same quarter one year prior, rising from $296.66 million to $6,774.10 million.
- YHOO's revenue growth trails the industry average of 28.2%. Since the same quarter one year prior, revenues slightly increased by 0.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- YHOO's debt-to-equity ratio is very low at 0.03 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.75, which clearly demonstrates the ability to cover short-term cash needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, YAHOO INC's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: YHOO Ratings Report