Pivotal Says Change Could Unlock Value at Yahoo! (YHOO), Upgrades Stock to Buy

Pivotal Research upgraded Yahoo! (NASDAQ: YHOO) from Hold to Buy with a price target of $36. Analyst Brian Wieser said, "At this point, virtually any change could help to unlock value."

"Although we are raising our recommendation from Hold to Buy on a slightly lower price target ($36 now vs. $37 previously) and an even lower trading price, an upgrade seems appropriate at this time in part because we think that circumstances are sufficiently dire for the company that changes which should unlock value are much more likely now than was the case a few months ago," said Wieser.

The analyst continued, "Yahoo’s situation has gone from bad to worse in recent quarters, with poor choices at both Board and senior management levels compounding bad luck. With virtually no support for either body within the investment community, activist investors are well-positioned to engineer changes in the coming months, or otherwise provoke management (or the Board) to make changes or announce significant initiatives that would help to catalyze the stock’s price higher."

Wieser added, "Virtually all of the stock’s value is presently dependent on the value of Alibaba and Yahoo Japan. We calculate $28 of value per Yahoo share after applying a 25% discount to each asset (implicitly to account for a discount to net asset value that investors would apply to these assets inside of a “stub” Yahoo), around $2 less than where the stock traded on Friday. We presently think that there should be around $9 of value for cash on the balance sheet and the core business, providing the upside in our model. Although cash is likely to hold greater value than the operating business, we recognize the potential for upside in a sale of core Yahoo, especially to a company looking to quickly scale up its presence in digital advertising or otherwise apply data-driven assets into new revenue generating directions as Verizon did with its acquisition of AOL."

For an analyst ratings summary and ratings history on Yahoo! click here. For more ratings news on Yahoo! click here.

Shares of Yahoo! closed at $29.75 yesterday.

You May Also Be Interested In

• Evercore ISI Upgrades First Solar (FSLR) to Outperform
• Stifel Upgrades Adidas AG (ADS:GR) (ADDYY) to Buy
• Wells Fargo Upgrades Datadog (DDOG) to Overweight