Why Piper Jaffray Just Downgraded Yelp

In a report published Monday, Piper Jaffray analysts downgraded the rating on

from Overweight to Neutral. The price target was lowered from $70 to $46. The analysts believe that a potential takeout of the company is already priced into the shares. "We believe there is a 65% chance Yelp eventually gets acquired, at a valuation at or slightly below the current share price," the analysts said. In fact, the stock has risen about 24 percent since speculations of a sale of the company emerged. The Wall Street Journal reported two weeks ago that Yelp was looking to sell itself for over $3.5 billion. The current share price set the enterprise value at about $3.3 billion, with market cap of $3.5 billion. However, the analysts believe that due to the recent headwinds faced by the company, an acquirer was unlikely to pay a significant premium for the purchase. "We think a reasonable high-end assumption is that a Yelp acquisition would fetch $60/share," the Piper Jaffray report stated. The analysts believe that the odds of Yelp being acquired is about 65 percent, with the most likely potential acquirers being

and

. In addition, given that investors have been waiting a long time for the acquisition of Yelp, as well as the 24 percent increase in share price following speculations of a deal, the analysts expect the company to "retrace near term to closer to $38 (pre-takeout speculation price) if a deal did not occur."