Nomura Boosts Price Target on Yahoo! Inc. (YHOO) Following Q3 Earnings; Cautiously Optimistic on Verizon Deal

Nomura analyst Anthony Diclemente reiterates a Neutral rating on shares of Yahoo! Inc. (NASDAQ:YHOO), while raising the price target to $45 (from $39), which represents a nearly 8% upside from where the stock is currently trading, after the company reported solid third-quarter results and fourth-quarter guidance yesterday, lingering questions surround Verizon’s acquisition of the internet giant’s core business.

Yahoo’s net revenue decline of 14% to $858 million performed “modestly better” than Diclemente’s projections, believing Display revenue “more than offset a more modest miss in Search.” Meanwhile, EBITDA hit “meaningfully ahead” at $229 million, which the analyst sees as a reflection of sustained “aggressive” cost cuts and “headcount rationalization.” Additionally, YHOO management lifted guidance for its fourth-quarter on back of better than anticipated third-quarter results coupled with advantageous leverage from ongoing cost reductions.

The analyst notes, “In our view, 3Q results should partially mitigate concerns that the sale of core Yahoo to Verizon could find further challenges given cost rationalization and FCF are outpacing expectations.”

“Although incrementally encouraging, there was no material update on the sale of Yahoo’s core business to Verizon; investors continue to await closing of the deal. The extent to which the leak of 500mn email users’ information in 2014 materially affects the value of Yahoo remains an open question, but we do not believe 3Q results reduce the likelihood of the deal closing. We update our model to reflect better guidance and raise our TP, owing to appreciation of Yahoo’s stake in Alibaba,” Diclemente concludes.

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, five-star analyst Anthony Diclemente is ranked #363 out of 4,180 analysts. Diclemente has a 60% success rate and realizes 8.2% in his annual returns. When recommending YHOO, Diclemente yields 12.8% in average profits on the stock.

TipRanks analytics exhibit YHOO as a Buy. Based on 24 analysts polled in the last 3 months, 50% rate a Buy on YHOO, while 50% maintain a Hold. The 12-month price target stands at $44.68, marking a 7% upside from where the shares last closed.

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