Welcome to the Stock of the Day.
I last featured Yahoo! (YHOO) as a Stock of the Day about a month ago, but a lot has happened since. In the four weeks leading up to last night’s earnings announcement, I was compelled to downgrade the stock to a hold due to deteriorating buying pressure.
However, with all of the excitement surrounding its latest earnings report, is it time to upgrade YHOO 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. This stock is a testament to how quickly new opportunities can open up in the tech sector.
I covered the full details in this morning’s blog, but here’s the cliff notes version. In the first quarter, Yahoo earned $312 million on $1.133 billion in sales. This translates to a 1% year-on-year dip in sales and a 20% decline in earnings. Adjusted earnings were 38 cents per share, beating estimates by 4%.
What excited investors was that Yahoo saw ad revenue growth for the first time since 2011, and that its products are being increasingly accessed by mobile customers. This indicates that Yahoo is growing its core businesses, rather than strictly relying on the strength of Chinese internet company Alibaba (which Yahoo has a 24% stake in).
Next quarter, Yahoo is headed towards 5.7% annual bottom-line growth. And the following fiscal year Yahoo is expected to see 14.7% earnings growth. But in the wake of these better-than-expected results, we very well could see upward earnings revisions over the next few days.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. YHOO spent the past twelve months in buy territory, but as I mentioned above I downgraded YHOO stock to a C-rated hold as institutional buying pressure fell (YHOO earns a C for its Quantitative Grade).
On the fundamental side, Yahoo also 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 (D), operating margin growth (F) and earnings momentum (F). Now, this reflects Yahoo’s results for the fourth quarter, so these grades could very well firm up once we once we plug in the data over the weekend.
Bottom Line: As of this posting I still consider YHOO stock a C-rated Hold.
However, due to the strength of the latest quarterly results, I could very well upgrade YHOO stock to a buy. The YHOO stock Portfolio Grader information and grade will be fully updated on Sunday night so please check back then.