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CLSA: It Makes Sense For Yahoo To Join Microsoft Or Verizon

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Investors of Yahoo! Inc. YHOO 4.15% are more worried about the company's sale process rather than the financial results. James Lee, an analyst who covers Yahoo for CLSA, maintained his Outperform rating on the stock and said there are "Barbarians At The Gate" in Yahoo.

The analyst raised his price target to $40 from $32 on increased market value of Alibaba Group Holding Ltd BABA 1.66% and Yahoo Japan shares, and higher valuation allocated to the core business.

Lee noted that management affirmed that the reverse spin-off will continue and believes that tax free is likely, and the estimated completion is in nine to 12 months as this event is considered a unique transaction. The analyst assigned a 30 percent NAV (net asset value) forecast to reflect this risk.

"We believe a better alternative is to join a larger platform like Microsoft Corporation MSFT 0.63% or become a part of a larger entity such as telcos like Verizon Communications Inc. VZ 0.24% that is interested in ad tech. Verizon bought AOL at 7.5x forward Ebitda, which implies that YHOO's core assets are worth $6bn ex-YJ agreement, or $6 per share," Lee wrote in a note.

On the earnings front, Yahoo's non-GAAP earnings of $0.08 topped estimates by a penny, while revenue of $1.08 billion was in line with consensus view.

Shares of Yahoo rose on Wednesday.

Apr 2016Goldman SachsMaintainsNeutral
Apr 2016BarclaysMaintainsEqual-weight
Apr 2016CitigroupMaintainsNeutral

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