UPDATE: Citigroup Initiates Sohu.com at Buy with $63.70 PT; Option Value on Sogou

Citigroup initiated its coverage on Sohu.com SOHU with a Buy rating and a price target of $63.70 a share. Citigroup commented, "We use a SOTP approach to value the key business units of Sohu separately to capture each segment's key dynamics. We believe the strategic value of Sogou (63%-owned by Sohu) is fundamentally underestimated by the market. The recent "search wars" (Qihoo vs. Baidu) highlight the importance of having a high-penetration presence on client software (Sogou has almost the same user penetration as Qihoo's browser & security) plus Sogou's search value. We also see Sohu's online game division Changyou (67%-owned) as an innovator, standing out in the increasingly converged web/mobile games space. Our Sohu SOTP imputes a TP of US$63.7, implying 55% upside from current levels." Sohu.com closed at $41.00 on Tuesday.