Citi Research Says Alibaba Currently Valued At 37% Discount Inside Yahoo Inc. Shares

On Monday, analysts at Citi Research offered commentary on shares of Yahoo Inc. YHOO and reiterated the Buy rating and $63 price target.

Citi analysts view shares of Yahoo Inc. as “our best idea” and feel shares of Yahoo currently trade at a 37% discount to Alibaba’s current valuation.

Mark May writes, “We believe a tax-free transaction is highly likely. Assuming 100% likelihood of a tax-free sale of the BABA stake and maintaining all else constant represents $12 or 24% upside.”

Near term catalysts include:

1) Yahoo management to announce a tax-free spin-off of its BABA stake sometime between November 18, 2014 and its 4Q14 earnings report in late January.

2) Yahoo to redo its search deal with Microsoft on more favorable terms by February 2015.

3) Core Yahoo results could continue to show improvement as the drag from international revenue declines diminish and international operating margins improve, as mobile growth helps to offset desktop headwinds, and as desktop search results benefit from an improved Microsoft or new alternative arrangement.

Shares of Yahoo recently traded at $51.70 down 0.14 percent.