How New CEO Mayer Could Get Yahoo's Stock To $21

A few more key asset sales, and new Yahoo CEO Marissa Mayer could - in theory - get the stock up to $21. How? Even before Mayer arrived, the struggling Internet property had taken steps to sell of some of its key assets. Yahoo

owns a 40% stake in fast-growing Chinese search engine company Alibaba, and a 33% stake in Yahoo Japan. The combined stakes of the two companies are worth more than $20 billion. Yahoo announced in late May that it plans to sell half the Alibaba it owns back to the Chinese internet company for $7.1 billion - $6.3 billion of it in cash. That deal appears to be headed for closure by year's end. Can Mayer also sell off the other half of Alibaba, plus the Yahoo Japan holding, worth an estimated $6 billion to $7 billion? In a perfect world, all of Yahoo and Alibaba could fetch as much as $21 billion for Yahoo on a pretax basis. Apply a 38% tax estimate, and the value of those holdings would be $15.4 billion. Keep in mind, Yahoo also has $2.4 billion of net cash - it has no long-term debt. The holdings and cash together are $17.8 billion against Yahoo's current market cap of $19.4 billion, a difference of only $1.6 billion. In theory, that $1.6 billion is therefore the market value of Yahoo's core business - roughly equal to what it will earn before interest, taxes and depreciation this year. The core business is likely worth more than a 1 times EBITDA multiple. Google

trades at 10 times EBITDA; Microsoft

is at 7 times. AOL

trades at more than 6 times. Yahoo should trade at a discount to its rivals, that's true. Yet, assuming just a 5 times EBITDA the multiple brings the value of the core business to $8 billion. Add that to the after-tax assumptions on the assets sales plus cash, and it's $25.8 billion. Assuming Mayer does nothing but help Yahoo tread water until those assets sales were to occur, that justifies a 33% higher price - about $21. Yahoo shares haven't traded that high since 2008.