Merrill Lynch analyst Justin Post came out yesterday with a favorable report on Yahoo! Inc. (NASDAQ:YHOO), raising the price target from $50 to $53, while reiterating a Buy rating on the stock, as Alibaba Group Holding Ltd (NYSE:BABA) stock has subsequently appreciated 13% following recent Verizon announcement to acquire Yahoo! Inc.’s core business in a $4.83 billion cash deal.

Post noted, “We are somewhat surprised that the market is still baking in a mid-30s tax discount on Yahoo’s Alibaba stake (now that the perceived Yahoo core business risk and spin-off regulatory risk has diminished). At the current BABA stock price of $96 and Yahoo Japan price of ¥423, and assuming ~$800mn for the Excalibur patent portfolio, we estimate the implied discount to the BABA stake at ~36%, close to full taxation.”

With full recognition that “the Yahoo shell investment company could persevere as a standalone proxy for BABA indefinitely (with a full tax discount), we think the opportunity for Alibaba to buy back its own shares at a discount (or for another strategic buyer to materialize) warrants a smaller discount,” the analyst added.

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Furthermore, Post comments, “We have been getting lots of questions on what Yahoo will do with its cash when the Yahoo sale closes in 1Q’17. We think, at the current share price, buybacks would seem to make more sense than dividends given the BABA tax discount implied at current YHOO levels. That said, the company cannot repurchase shares when holding material non-public info, so any buybacks would need to wait until the Verizon transaction is complete.”

For investors eyeing 2016 returns, Post continues to believe the biggest risk waits for long-only investors and advises to keep a watchful glance on the decline in BABA stock price.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, top five-star analyst Justin Post has achieved a high ranking of #16 out of 4,122 analysts. Post upholds a steady 76% success rate while realizing 19.9% in his yearly returns. When recommending YHOO, Post earns 10.6% in average profits on the stock.

TipRanks analytics demonstrate YHOO is a Buy. 50% of analysts polled in the last 3 months rate a Buy on YHOO, while 50% maintain a Hold. The consensus price target stands at $42.10, marking just under a 2% downside from where the shares last closed.