Yahoo's 3 'Hidden' Assets Are Not Well Understood; Bob Peck Raises Target To $44

Robert S. Peck of SunTrust Robinson Humphrey believes that bids for Yahoo! Inc.’s YHOO core business could see upside due to the company’s “hidden assets.”

The analyst maintained a Buy rating on Yahoo, while raising the price target from $40 to $44.

Peck mentioned that an analysis of the value of the core revealed “3 critical aspects of valuation that are not well understood and could have material upside to bids,” which could potentially drive the offers higher than the estimated $6-$7 billion.

Three Hidden Assets

Among the three assets that Peck believes are underappreciated are Yahoo! Japan’s royalties, IP and PP&E.

“We believe the royalty stream is very valuable, as it is in perpetuity and represents ~30 percent of Yahoo’s core advertising EBITDA in 2016,” the analyst stated.

In addition, Peck pointed out that investor concerns regarding the transferability of the cash flow from royalties seem “misplaced,” according to the original contract, which is publicly available.

The analyst also noted that the company had more than 6,000 patents, the value of which could be higher than the $1-$3 billion cited by Yahoo.

The company also owns about one million square feet of building and real estate, which is likely to be worth about $1 billion.

Peck believes that bids in Round 1 were likely to start lower than $6 billion, with bidders trying to bid just enough to make it to Round 2. Bidding would become more intense in Round 2, with offers rising to the high end of the estimate.