Citigroup: Yahoo!'s Risk To Reward Is Favorable

Mark May of Citigroup resumed coverage of

on Wednesday with a Buy rating and $63 price target due to fundamental and event driven reasons. From the fundamental point of view, the analyst notes that shares at $45 reflect the following: 1.

current equity value and a high likelihood of a fully-taxed sale of its 15 percent stake is valued at $24 per share. 2. A zero percent compounded annual growth rate and a five times EBITDA multiple for Yahoo!'s core offering is valued at $14 per share. 3. Yahoo! Japan's current equity value and a fully-taxed sale of the company's 35 percent stake is valued at $4 per share. 4. Accretion from $3 billion in share repurchases translates to an additional valuation of $3 per share. A price target of $63 assumes a $118 price target for Alibaba shares and a tax-efficient sale of Yahoo!'s stake and a two percent revenue compounded annual growth rate and six times EBITDA multiple for Yahoo!'s core brand. May notes upcoming catalysts that support a higher valuation on shares include a greater than 50 percent likelihood the company will announce it plans to liquidate its Alibaba stake in a tax-efficient manner in 2015. The analyst expects a “significant” share buyback activity in 2015. Finally, the analyst expects Yahoo! restructuring its search agreement with

in 2015.