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The Sell-Side View On A Transformed Yahoo: Altaba Initiated At Overweight

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The Sell-Side View On A Transformed Yahoo: Altaba Initiated At Overweight
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JPMorgan initiated coverage on Altaba Inc (NASDAQ: AABA), the reincarnation of Yahoo’s assets following the sale of the Yahoo's operating business to Verizon Communications Inc. (NYSE: VZ). The firm issued an Overweight rating accompanied by a price target of $65.

The price target represents a 20 percent upside from intra-day Wednesday.

Altaba is an investment holding company, with over 85 percent of its assets consisting of Alibaba Group Holding Ltd (NYSE: BABA) and Yahoo Japan shares.

AABA Needs BABA

Altaba owns about 15 percent of Alibaba shares, which provides the foundation for analyst Doug Anmuth’s bull thesis (check out his track record here).

Altaba’s bull case depends on closing its 31 percent discount to Alibaba, with a small positive from Yahoo Japan’s future success.

While a 10-percent rise in Yahoo Japan share price translates to only about a 1 percent rise in Altaba’s net asset value, a 10 percent increase in Alibaba share price would send Altaba’s net asset value about 7 percent higher.

JPMorgan analyst Alex Yao places a $190 price target on Alibaba, which would translate to a 21 percent upside for Altaba.

Tax Efficiencies

Anmuth believes Altaba can close its discount to Alibaba via tax efficient share sales.

The analyst sees Alibaba buying back its shares at a 15-percent market discount, which would lead to a 36 percent upside to Altaba’s target price. A tax efficient sale of Yahoo Japan shares could add another 8 percent upside.

The U.S. government’s pending tax reforms also leave much uncertainty, but a new 15–27.5-percent tax rate could translate to a 10-27 percent upside.

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Latest Ratings for AABA

DateFirmActionFromTo
Aug 2018JP MorganMaintainsOverweightOverweight
Aug 2018JP MorganReinstatesOverweight
Jul 2018Credit SuisseMaintainsNeutralNeutral

View More Analyst Ratings for AABA
View the Latest Analyst Ratings

Posted-In: Alex YaoAnalyst Color Long Ideas Initiation Buybacks Analyst Ratings Tech Trading Ideas Best of Benzinga

 

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