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Victor Anthony Weighs in on Yahoo! Inc. (YHOO) and Alphabet Inc. (GOOGL) Ahead of Q3 Earnings

By Kate George  

Top-ranked analyst Victor Anthony of Axiom weighed in on two tech giants yesterday: Yahoo! Inc. (NASDAQ:YHOO) and Alphabet Inc. (NASDAQ:GOOGL). Both companies are poised to release earnings reports this week. Anthony has a 61% success rate recommending stocks with a +14.4% average return when measured over a one-year horizon and no benchmark. 

Yahoo

Anthony maintained a Buy rating for Yahoo’s stock and raised his price target from $41 to $45. The analyst explained, “With a core business that continues to struggle, we are expecting in-line results from Yahoo. The stock, however, which has appreciated over ~20% over the past three weeks, will likely continue to be tied to the performance of Alibaba’s share price until the spinoff occurs, expected in the current quarter.”

The analyst points out several opportunities for Yahoo after it spins off its remaining stake in Alibaba, including, “aggressive share repurchases;” “switching to Alphabet/Google search; “further headcount reductions;” and “monetizing Yahoo Japan.” However he does point to the risk of the IRS challenging the tax rate of the transaction.

For the impending earnings report, Anthony expects Yahoo to post non-GAAP EPS of $0.14, compared to the consensus of $0.16. He estimates revenues of $1.003 billion, shy of estimates of $1.025 billion. Looking forward, Anthony expects the company to post 4Q non-GAAP EPS of $0.20 on revenue of $1.079 billion.

Talking about this expectations for the earnings report, Anthony will be looking for “Revenue performance of Yahoo’s growth investments.” Furthermore, the analyst will be looking to see “Whether Yahoo will switch over entirely to Google,” explaining, “we understand that there is a 30% monetization delta between Google and Bing, therefore switching from Bing could drive a 10%-15% lift in EBITDA in 2016 by our calculations.” Lastly, Anthony is keeping an eye on “Whether Tumblr is on track to generate the guidance of more than $100M in revenue this year” and “capital allocation plans.”

Victor Anthony has rated Yahoo 18 times since 2013 earning a 61% success rate recommending the stock with a +4% average return per YHOO rating when measured over a one-year horizon and no benchmark.

According to the 21 analysts polled by TipRanks in the last 3 months, 17 are bullish on Yahoo and 4 are staying on the sidelines. The average 12-month price target for Yahoo is $43.89, marking a 32% upside from current levels.

Alphabet Inc.

Alphabet Inc. (GOOGL) is set to announce its results for Q315 on Thursday. Ahead of the announcement, Anthony weighed in with a Buy rating a $850 price target. Anthony commented, “We are expecting in-line 3Q results with bias to the upside driven by new ad formats in the quarter such as Gmail ads, app install ads in the Play Store and increased text ads inventory on mobile. FX remains a risk.”

Anthony expects the company to post revenue of $14.96 billion; a 13.5% year-over-year increase; and adjusted EPS of $7.27. These estimates compare to the overall consensus of revenue of $15.06 billion and EPS of $7.24

In his report, the analyst also outlined some risk for Alphabet’s stock including: “Lingering antitrust litigations in Europe, rising competition from Facebook and Twitter, potential loss of search partners like Apple, and no returns from the company’s moonshot investments.”

Victor Anthony has rated Google 18 times since 2013 earning a 61% success rate recommending the stock with a +4% average return per YHOO rating when measured over a one-year horizon and no benchmark. According to the 25 analysts polled by TipRanks in the last 3 months, 24 are bullish on Alphabet and 1 is staying on the sidelines. The average 12-month price target for Alphabet is $780.80, marking a 11% upside from current levels.