NEW YORK (TheStreet) -- Shares of Yahoo! Inc (YHOO) are rebounding, up 3.22% to $42.30 in early market trading Wednesday, after the stock slumped in the prior session following comments by the Internal Revenue Service.

On Tuesday, an IRS official said the agency is considering changes to its rules governing spinoffs, Bloomberg reported. 

Shares slid nearly 8% on worries the company's plan for a tax-free spinoff of shares of Alibaba Group Holding Ltd  (BABA) may face regulatory challenges.

However, the company said in a statement this morning that the changes would not affect Yahoo's request, which was filed in the first quarter of 2015. 

Yahoo added that the IRS statement is not specific to Yahoo's spinoff of its remaining stake in Alibaba Group and Yahoo Small Business.

In addition, analysts at Morgan Stanley said this morning that Yahoo's weakness related to reports the IRS is considering changes to its tax-free spinoff rules is a buying opportunity.

The firm rates Yahoo an "overweight" and added that the stock reaction almost fully discounts a worse case scenario. 

Sunnyvale, Calif.-based Yahoo! is a global technology company, delivering digital content and experiences, across devices and globally. The company provides online properties and services to users, as well as a range of marketing services.

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 revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. We feel its 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:

  • YHOO's revenue growth has slightly outpaced the industry average of 5.8%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although YHOO's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.44, 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.
  • Compared to its closing price of one year ago, YHOO's share price has jumped by 31.54%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • You can view the full analysis from the report here: YHOO Ratings Report