UPDATE: SunTrust Resumes Yahoo! (YHOO) at Buy

(Updated - November 5, 2014 1:27 PM EST)

SunTrust Robinson Humphrey resumed coverage on Yahoo! (NASDAQ: YHOO) with a Buy rating and a price target of $57. Analyst Robert S. Peck thinks the stock is trading at distressed levels.

"We feel that while the core has struggled, the market is fully reflecting the weakness in the legacy properties while giving little credit to some of the progress made more recently around: mobile, native, Tumblr, search, and video," said Peck.

"Our analysis indicates that after adjusting for Yahoo’s ownership of Yahoo Japan and Alibaba (taxed at 20%), investors are essentially getting the core Yahoo asset for less than 1x EV/EBITDA. Yahoo’s Alibaba holdings and equity interest in Yahoo Japan together are worth ~$38 per YHOO share (eventual proceeds taxed at 20%). The company has another ~$8B or $8 per share in net cash (net of $3B 1Q15 tax liability), bringing cash plus Asian assets to ~$46 per YHOO share. This leaves $1 per YHOO share or <$1B of enterprise value versus STRH estimated 2015 EBITDA of ~$1.3B, thus valuing Yahoo’s Core at less than 1x EV/EBITDA," continued the analyst.

"While we are recommending YHOO shares based on valuation and risk/reward, we point to several potential catalysts that we think could drive the stock including: 1) announcement of tax efficient strategies for monetizing Alibaba holdings and Yahoo Japan equity interest; 2) renegotiation or canceling of the Microsoft search deal in 1Q15; 3) continued progress on mobile, native, and Tumblr; 4) further cost rationalization; 5) increased return of shareholder capital, including potential asset sales (i.e. IP); and 6) strategic M&A, including around programmatic.
Risks to the story include accelerated deterioration in the desktop web businesses, premiums paid for M&A, and difficultly in unlocking value from tax structures," he added.

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 $47.08 yesterday.

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