Yahoo! Inc. has been reaping the benefits from Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) ever since Alibaba released a record-breaking IPO in September 2014. Yahoo announced plans earlier this year to spin off its stake in Alibaba into an independent investment company called SpinCo by Q4 2015.
At first, analysts hoped this move would allow Yahoo to focus on growing its core business while giving value back to shareholders. However, it seems that Alibaba has been more of a burden than an asset to Yahoo ever since the IRS announced that it is considering taxing spin offs beginning in May. Additionally, the Chinese economy began plummeting towards the end of June, resulting in huge hit to Alibaba’s valuation.
Cantor Fitzgerald analyst Youssef Squali lowered his price target on Alibaba from $110 to $95 after the company missed second quarter earnings expectations earlier this month. Squali proceeded to lower his price target on Yahoo from $62 to $56 today to reflect his adjustment on Alibaba’s price target, though he reiterated a Buy rating on the stock.
The analyst believes “that the implied tax rate for the spin-off shares is likely excessive (management is targeting tax-free status), and BABA’s fair value likely to be well in excess of its current $75/share.”
Squali notes, “To match today’s YHOO share price, BABA’s spin off needs to be taxed at 38% (consistent with the first tranche sold in 2012), and no further upside in BABA’s share price would be expected (currently trading at ~$75/sh vs. our $95 PT). We believe this is a very bearish scenario, offering a meaningful margin of safety for patient investors.”
On average, Youssef Squali has a 61% success rate recommending stocks and a +19.4% average return per recommendation when measured over a one-year horizon and no benchmark.
Out of 24 analysts polled by TipRanks within the past 3 months, 19 analysts are bullish on Yahoo and 5 are neutral. The average 12-month price target for Yahoo is $53.47, marking a 49.82% potential upside from where the stock last closed. On average, the all-analyst consensus for Yahoo is Moderate Buy.
Oracle Corporation has been trying to expand its cloud computing efforts in order to offset declining sales in software licenses.
The company posted its fourth quarter earnings results back in June and missed estimates on both the top and bottom line. Many have been cutting the company some slack with the belief that its cloud transition is still in early stages.
One analyst is not so bullish, however. Citigroup’s Walter Pritchard weighed in on Oracle today, maintaining a Neutral rating on the stock with a $42 price target. The analyst noted, “After lackluster 4Q15 results, we take a more detailed pass at some of the controversies around ORCL’s numbers. We have mixed conclusions and therefore aren’t able to get incremental conviction the current spate of investor concerns will be resolved soon.”
While Pritchard acknowledges that Oracle offers enticing incentives and discounts, it is unclear if they have made an impact on the license-cloud transition. Additionally, the analyst sees SaaS/PaaS declining further and will only stabilize by the end of 2016. Pritchard noted, “Street revenue estimates for SaaS / PaaS looks conservative for FY16 given FY15 reported new ARR and guidance for FY16.”
On a positive note, Pritchard comments, “While shares have underperformed, we note that numbers have come down while stock has retained P/E at high-end of trading history.”
On average, Walter Pritchard has a 67% success rate recommending stocks and a +13.7% average return per recommendation when measured over a one-year horizon and no benchmark.
Out of 18 analysts polled by TipRanks, 10 analysts are bullish on Oracle and 8 are neutral. The average 12-month price target for Oracle is $46.47, marking a 16.67% potential upside from where the stock last closed. On average, the all-analyst consensus for Oracle is Moderate Buy.