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

JPMorgan initiated coverage on Altaba Inc AABA, the reincarnation of Yahoo’s assets following the sale of the Yahoo's operating business to Verizon Communications Inc. 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 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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