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Jefferies Lays Out The Bull/Bear Scenarios In Yahoo; Downgrades To Hold

Jefferies Lays Out The Bull/Bear Scenarios In Yahoo; Downgrades To Hold|NASDAQ:YHOO

Jefferies’ Brian Fitzgerald estimated the value of five key assets held by Yahoo! Inc. YHOO 0.85%, Yahoo Core, Cash & Market Securities, Alibaba Group Holding Ltd BABA 0.36% stake, Yahoo! Japan and the Excalibur Patent Portfolio.

Fitzgerald downgraded the rating on Yahoo from Buy to Neutral, while raising the price target from $43 to $48.

Assets Valued

The analyst continues to remain focused on Verizon Communications Inc. VZ 1.77% closing the acquisition of Yahoo Core, along with the monetization and tax efficiency of the Alibaba and Yahoo! Japan (YJ) stake.

According to the Jefferies report, using SOTP analysis, Yahoo Core was valued at $3.8-$4.8 billion, Cash & Marketable Securities at $7.7 billion, Alibaba at $13 billion–$43 billion, YJ at $4.1 billion–$6.6 billion and the Excalibur Patent Portfolio at $0.6 billion–$1.2 billion.

The Bull & Bear Case

Fitzgerald mentioned that in an upside scenario, where Alibaba and YJ are spun off in a tax efficient manner, the price target could reach $66, while a downside scenario would take the price target to $30.

However, the analyst stated, “Given the limited ability for YHOO management to come to a solution over the past 4+ yrs we have little insight into the ability to reach a tax efficient spin.”

In the downside scenario, Fitzgerald assumes a $1 billion write down of Yahoo core for the Verizon acquisition. Therefore, the closing of the acquisition at the announced price of $4.8 billion is awaited.

“Yahoo shared engagement trends which highlighted the lack of a fallout from usage following the Sept email hack announcement. There could be downside if VZ determines there was a material withholding during due diligence,” the analyst cautioned.

At last check, Yahoo was down 1.42 percent at $41.78.

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DateFirmActionFromTo
Oct 2016JefferiesDowngradesBuyHold
Oct 2016NeedhamDowngradesBuyHold
Oct 2016MKM PartnersMaintainsBuy

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