Thursday, July 20, 2006

Calls of Note Part 1

- Stifel believes the sell-off was overdone in Yahoo! (NASDAQ:YHOO) and also believes a sector relief rally may be in the midst with eBay's numbers last evening. Also, they expect strength from GOOG tonight.

At $25.20, Yahoo! trades at 24x 2007 FCF and 20X 2008 FCF. Yahoo! also trades at 10x 2007 EBITDA and 8.7x 2008 EBITDA. Yahoo! is now approaching the EBITDA multiple of the traditional media industry (which we calculate at just below 9x 2007). The distinct difference remains that Yahoo! is growing organically at 29% compared to traditional media at 7% and Yahoo!'s entire asset base has stable terminal value unlike many in traditional media (i.e., newspapers, etc.).

If one were ever looking for exposure to this sector, to the advertising category within the sector, and specifically to Yahoo!, now is the time, in firm's view. Notes they maintained they Buy rating because they like the franchise and thought they would be given an opportunity to get very aggressive on the name without shifting ratings around. Firm believes the market has offered opportunity in one day's time and believes the allocation of dollars away from the sector has allowed for compelling long-term opportunities. Would be aggressive buyers of YHOO on the open this morning, all else being equal.
Buy, $37 tgt.

Notablecalls: Would not be surprised to see YHOO bounce a bit. Also note that there is a mid-level rumour circling trading desks that YHOO is a takeover candidate. The New York Times has a piece on it.

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