Axiom's Anthony 'Placing A Bet' On A Favorable IRS Ruling For Yahoo

In a report issued Wednesday, Axiom’s Managing Director of Internet Media Victor Anthony takes a look into Yahoo! Inc. YHOO, after the company reported strong second quarter financial results and a weak third quarter guide on Tuesday.

According to the note, investing in Yahoo today is, in large part, placing a bet on the company receiving a favorable IRS ruling to realize its intended tax-free spinoff of Aabaco Holdings. Given that Axiom is willing to make that bet, the experts reiterate a Buy rating and $49.00 price target on the stock, which implies an upside of approximately 25 percent.

Related Link: Bob Peck Maintains Buy On Yahoo 'Despite Weakening Fundamentals'

The second quarter fundamental results came in considerably ahead of the firm’s expectations, “with accelerating growth in Mavens, Display, GAAP Search growth and even Desktop.” Nonetheless, guidance for the third quarter missed both Axiom’s and consensus expectations as management anticipates sequential revenue headwinds and incremental investments.

“In addition to the probability of a favorable IRS ruling, bulls on the stock could look to the potential monetization of Yahoo Japan (Yahoo, surprisingly, sees a number of ways to maximize the value of that stake), share repurchases ($2.7B authorization), growth of Mavens, and future margin expansion from cost reductions,” Anthony said.