Citi Upgrades Yahoo To Buy, Says Core Biz Currently Has Negative Valuation

• Yahoo! Inc YHOO shares have lost 17 percent since January 4, and are currently trading near their 52-week low of $26.57.
• Citi’s Mark May upgraded the rating for the company from Neutral to Buy, while raising the price target from $31 to $32.
• The risk reward for Yahoo appears favorable at current levels, considering cost cuts, non-core divestitures and a potential sale of the core, May stated.

Analyst Mark May mentioned that Yahoo’s stock is down 21 percent since the company suspended its plan to spin out its stake in Alibaba Group Holding Ltd BABA. He analyst believes that even after heavily discounting the company’s stake in Alibaba and Yahoo! Japan, the implied value for the core business may be negative at current levels.

Yahoo may either spin off its core business, including the stake in Japan, or sell it off. In both the scenarios there is “enough upside to warrant buying the stock,” the analyst added.

Yahoo’s plans to cut costs have reduced the risk of the company missing the CY16 adjusted EBIDA estimates, May mentioned. He added that the disappointing guidance and financial outlook had raised the pressure on management and the Board to seriously consider strategic alternatives.

Terming the company’s willingness to explore other value creating opportunities as a “positive development,” May commented that the sale of non-core assets could boost the stock’s valuation.