Welcome to the Stock of the Day.
At least one tech company doesn’t have a case of the Mondays. Yahoo! (YHOO) rallied this morning after Alibaba Group revealed plans to go public on a U.S. exchange. Now that we have the details on the much-anticipated IPO, is this a buying opportunity for Yahoo stock? Find out now.
Yahoo is one of the world’s largest internet corporations. With nearly 12,000 employees and operations in 25 countries, Yahoo is widely recognized for its web portal, search engine and email service. Yahoo stock is a testament to how quickly new opportunities can open up in the tech sector.
Yahoo stock gapped up at today’s open after Alibaba Group announced that it has begun the process of going public. Alibaba’s initial public offering will take place in the U.S. Because Alibaba controls 80% of China’s e-commerce, it could be one of the largest IPOs ever in this country. This is big news for Yahoo because it has a 24% stake in the Chinese e-commerce giant; Yahoo is expected to unload about 40% of its stake when Alibaba goes public. Word on the Street is that the company could raise $15 billion and be valued at over $100 million.
Yahoo CEO Marissa Mayer has made her mark through an aggressive acquisition strategy, most notably the $1.1 billion buyout of blogging site Tumblr. The push to bring in new technologies and talent to Yahoo has weighed on earnings in the short-run. This quarter, analysts expect Yahoo to see EPS decline 2.6% over the year ago quarter.
However, it shouldn’t take long for things to heat up as these recent acquisitions start to contribute to Yahoo’s bottom line. Next quarter, Yahoo is headed towards 5.7% annual bottom-line growth. And the following fiscal year Yahoo is expected to see 14% earnings growth. Then again, this company has a strong track record of earnings surprises so it could do even better.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Yahoo stock has spent the past twelve months in buy territory. This stock is an interesting case because on the fundamental sides, Yahoo receives a C-rating overall. That’s because YHOO receives less-than-stellar grades for four of the eight metrics I grade it on, including sales growth, operating margin growth and earnings growth.
But with analysts projecting solid earnings growth through the end of 2014, I expect Yahoo to improve its balance sheet soon enough.
Meanwhile, YHOO is A-rated in terms of Quantitative Grade, indicating that it’s still a favorite of institutional investors..
Bottom Line: As of this posting I consider YHOO a B-rated Buy. Beyond the Alibaba IPO, Marissa Mayer has accomplished a lot in her first year and change at Yahoo and I’m confident that the company will continue to progress under her leadership.