Why Yahoo’s Stock Decline Is An Overreaction – Analysts

Why Yahoo’s Stock Decline Is An Overreaction – Analysts
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Even under constraining circumstances, Yahoo’s stock, which experienced a 2.9% drop on last Tuesday’s closing, is an overreaction, analysts say.


Reports of Yahoo’s stock surging brought fear for some investors as rumors of its planned Alibaba shares spinoff to curtail tax was threatened. At a luncheon in Washington, as reported by Bloomberg, an IRS employee noted that the agency is thinking of revamping rules about company spinoffs. The report quoted:

Isaac Zimbalist, senior technician reviewer at the IRS Office of Associate Chief Counsel (Corporate), said on Tuesday that the agency is considering changes to rules concerning spinoffs. The IRS will hold off on requests for rulings that are received starting Tuesday as the issue is studied, he said at a D.C. Bar Association event. Requests already received will move forward, but that is subject to change. It wasn’t clear what would happen to requests, such as Yahoo’s, that are already in the pipeline.

Yahoo had earlier announced it was planning a “non-taxable spinoff” for its $40 billion worth of Alibaba shares. The plan, announced by Marissa Mayer, apparently triggered IRS’ worry of companies trying to get a big chunk of tax off their and their investors’ back.

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Based on Forbes analysis, the idea is for Yahoo to create a new company that could get the Alibaba shares and, borrow money, then eventually, “distribute cash to Yahoo.

Yahoo closed in at $40.98 late Tuesday, their lowest since October. They took off again at $43.01 on Wednesday’s closing.

Analysts Are Split

Most analysts, however, see this as a good buying opportunity for investors. According to SunTrust Robinson’s Bob Peck, this is a good moment to buy Yahoo stocks.

“So, if you took Yahoo! Japan and even taxed it at 20 percent, it’s about $7 a share. If you took their core EBITDA, multiply it by a 5 multiple, it’s a discount to AOL 7.5 takeout. That’s $5 a share and then $6 cash. That’s about $18,” Peck said in a report from CNBC. He further urged investors to see things from a bigger perspective, as sum of its parts.

UBS analysts look at the situation in a better light. They maintain their Buy position and still stick to how Yahoo is a good buy for investors looking into future profits. An analyst estimates, as reported by Benzinga,  the per-share price to be around $40.

MarketWatch reports Brian Nowak of Morgan Stanley still isn’t losing faith on the buying opportunity for Yahoo’s stocks, even if the spinoff doesn’t occur.

Tigress Financial earlier this May downgraded Yahoo from Buy to Neutral, as Ivan Feinseth saw little chances of a quick turnaround with the company’s “deteriorating” core business. With Tuesday’s performance, there is no reason for them to upgrade to Buy anytime soon.

Unless they see things in a different light.