Analysts Maintain Yahoo! Inc. Ratings Despite Spinoff Risk

The tumble in Yahoo! Inc.'s

stock has the shares priced as if the planned spin-off of its Alibaba stake were fully taxed, several analysts said Wednesday. Yahoo reportedly said its proposal for a tax-free deal shouldn't be affected by tax authorities' possible consideration of relevant rule changes, although analysts were uncertain. http://www.bloomberg.com/news/articles/2015-05-19/yahoo-shares-drop-on-potential-changes-to-irs-s-spinoff-rules Ramond James' Aaron Kessler now believes Yahoo has a 60 percent chance of completing a tax-free deal, down from his earlier assessment of 80 percent. Kessler trimmed his Yahoo target 12 percent to $51, but maintained an Outperform rating on the shares. Yahoo traded recently at $42.45, up about 3.6 percent. The shares had been off as much as 7.5 percent Tuesday, after Bloomberg reported comments by an IRS official made to Washington tax attorneys regarding the treatment of spinoffs. A ruling from the Internal Revenue Service that taxed the deal at 35 percent implies a Yahoo value of between about $40 and $45 a share, according to both Morgan Stanley's Brian Nowak and Oppenheimer's Jason Helfstein. Yahoo's $40.98 price as of late Tuesday "already accounts for the worst-case tax scenario," according to Suntrust's Robert Peck, who said it's "extremely unclear" whether the Internal Revenue Service actions would affect the deal. Peck maintained a Buy and $59 target on Yahoo. Helfstein reiterated an Outperform rating and $58 target, while Nowak held steady at Overweight. The potential IRS rule change "invokes an element of meaningful risk" in Yahoo's spin off plan, but Axiom's Victor Anthony said he's optimistic and called the pullback "a buying opportunity." Anthony maintained a Buy rating and $51 target. The IRS official, Isaac Zimbalist, reportedly said the agency may increase the significance of operating assets required in tax-free spin-offs in proportion to stocks, cash and property that are included. Yahoo plans to fold its Small Business operating unit into the spin off, in addition to Alibaba shares valued at $40 billion as of January.