Internet portal Yahoo! (NASDAQ:YHOO) was wanted after stockbroker Bernstein upgraded the stock to ‘outperform’ from ‘market perform’.
In the broker’s view, the current share price of around US$36.50 represents the “almost worst case scenario” for the once cutting edge Internet pioneer.
Yahoo’s shares were laid low yesterday by a shocker of a trading update from Chinese online marketplace operator Alibaba (NYSE:BABA), in which Yahoo! has a 15% stake.
For the three months to end June, Alibaba’s revenues rose 28% year-on-year to US$3.26billion (bn), but analysts had forecast a figure of US$3.39bn.
Bernstein analyst Carlos Kirnjer maintained his price target of US$52 but clearly thinks yesterday’s share price tumble to US$34.49 presents a buying opportunity.
Even after Alibaba’s shares retreated, Yahoo’s stake is worth about US$18.40 a share by Kirnjer’s calculations, while it also has about US$4.40 a share in cash, even after a large share repurchase programme over the last 12 months.
"Despite being very bullish on Alibaba, we have been cautious on Yahoo! because so far we believe investors who buy into our Alibaba thesis are better off investing directly on Alibaba and not taking any of the risks associated with owning Alibaba indirectly through Yahoo!," Kirnjer said.
Nevertheless, at the current price, there is limited downside and considerable potential upside in Kirnjer’s view.
Shares in Yahoo! were up US$2 at US$36.49 in lunchtime trading.