SumZero Analysts Dig Into Yahoo!

By: SumZero Staff | Published: September 11, 2012 | Be the First to Comment

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Yahoo! (Nasdaq: YHOO)

(The following information comes directly from SumZero’s community of buyside analysts.)

SumZero Analysts Following Yahoo!: 37
SumZero Investment Reports on Yahoo!: 4

SumZero Community Sentiment:
85% Long, 10% Short, 5% Hold

SumZero Consensus Price Target:
Mean: $19.50 per share
Median: $21.00 per share

Quick Overview:
The market is underestimating the value of the Asian asset portfolio and is overly discounting the rate of decline of the core US Yahoo! business. Yahoo! still remains one of the top 5 web properties. Yahoo!'s decline is not like AOL's (NYSE: AOL) - which was due to a total loss of the dialup business. It is due to mismanagement. But there is still time to fix this.

SumZero's Differentiated Market Insight:
“This story is filled with drama and investor fatigue, but the value creation thesis is fairly straightforward. The company is in the process of moving from non-binding term sheet to definitive agreement to monetize their Asian holdings in a tax efficient manner utilizing a cash rich split-off transaction.” Hedge Fund. Chicago, IL.

“ With Yang exiting and at least 4 more directors surely to do the same, a new board of directors will be put in place that will be held accountable for seeing Asian monetization come to fruition, cash distributed to shareholders, cash redeployed into higher ROIC business development and approving new M&A via the split-off entities Yahoo! Japan, and Alibaba acquisition sub.” Hedge Fund. Chicago, IL.

“According to Bernstein estimates, free cash flow (FCF) to the core Yahoo! business will be ~$800m in 2011 and ~$1000m in 2012. So buying Yahoo today would imply a valuation of 3x FCF. Note: this valuation doesn't consider the ~$2bn of net cash on the company's balance sheet. If you include the net cash on the balance sheet, and you assume Bernstein FCF estimates for this business are correct for 2012, then you’re buying $1bn of 2012 FCF for $1bn today. Over the last 12M, Yahoo! has generated $500m of FCF. So perhaps Bernstein estimates are too high, but even if they grow FCF marginally in 2012 the valuation still seems very enticing.” Hedge Fund. Boston, MA.

“I'm simply looking at the math of the transaction and thinking that the valuation makes sense. The market may be sick and tired of Yahoo! trying to turn itself around, and likely has lost considerable faith in management. But at this valuation, it seems like a reasonable risk to start a position in Yahoo!.” Hedge Fund. Boston, MA.

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