Analysts Praise Yahoo! Inc. (YHOO)’s Tax Free Spin of Alibaba (BABA) Stake

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A number of analysts have weighed in on Yahoo! Inc. (NASDAQ:YHOO)’s move to exit its 15% stake in the Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA). Yahoo is attempting a rare approach in the tax-free spin-off of its remaining Alibaba stake, a move that could save Yahoo billions of dollars in taxes. In the company’s final three months of 2014, Yahoo posted mixed operating results that didn’t impress analysts. However, the spin-off of the stake in Alibaba is expected to push up Yahoo’s stock price.

Yahoo! Inc. (NASDAQ:YHOO) currently owns 15% of Alibaba and offloading that stake is expected to bring proceeds of about $40 billion. The approach that Yahoo is set to take in selling the remaining holding in Alibaba could save the company about $15 billion in taxes.

FBR Capital raise target price for Yahoo stock

Following the declaration of the plan to sell the stake in Alibaba, analysts at FBR Capital reacted by raising their target price on the stock of Yahoo! Inc. (NASDAQ:YHOO) to $58 from $56. They said that their move was based on the analysis of the sum-of-the-parts. However, the analysts cited that there are a number of key closing conditions for Yahoo to meet for the tax-free spin-off of the existing stake in Alibaba to succeed.

FBR Capital also noted that Yahoo’s 4Q performance was not impressive as the results were not only mixed, but also did not support multiple expansions.

Tepid 1Q guidance

On their part, analysts at Oppenheimer cited the potential positive impact of the spin-off the remaining stake in Alibaba and raised their target price on Yahoo! Inc. (NASDAQ:YHOO). The analysts set a new target price of $66 from $61. However, Oppenheimer noted that Yahoo’s 1Q2015 core guidance was weak, especially the EBITDA that fell 29% below the view of the Street.

RBC Capital analysts weighed in on Yahoo! Inc. (NASDAQ:YHOO), citing the company’s unimpressive 4Q results but increased their target price on the stock to $55 from $46. The analysts also said their price move was based on the potential $15 billion or more saving from the spin-off of the remaining holding in Alibaba. Besides the tepid 4Q, RBC Capital cited that Yahoo’s 1Q2015 was weak in terms of net revenue and EBITDA.

Analysts at Credit Suisse reacted to the planned tax-free spin-off of Yahoo! Inc. (NASDAQ:YHOO)’s stake in Alibaba by raising their target price on the stock to $69 from $54.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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