The Marley Group

Strong Buy
12 Month Target $32.00

The Marley Group has issued a strong buy rating on shares of Yahoo! (YHOO), following up the earlier released research note Has Yahoo! Bottomed Out?. Coverage on Yahoo! is being initiated with a buy rating and a 12 month price target of $32. Discounting the $10 in cash and equity investments that Yahoo! has on their balance sheet, we see fair value for Yahoo!’s business at $22 per share based on our FY 07 earnings estimates of $0.72 and a reasonable P/E ratio of 30, considering an earnings growth rate estimate of 30% for the year. We believe that Yahoo! has the potential to earn $0.72 in FY 07, an upside of $0.12 to current consensus estimates, with the roll out of their long awaited search marketing platform upgrade and continued enrichment of their user experience through new offerings and the continued integration of smaller acquisitions. Yahoo! is well positioned to capitalize on the expected surge in online video advertisement growth and continued shift of marketing budgets towards the web and away from old media. Considering our downside estimate of $22 per share on Yahoo!, the risk here looks small when considering the upside potential for shares after losing more than 40% of their value this year. We view Yahoo! as a very attractive investment at current levels.

Disclosure: Joseph Urgo does not have a position in Yahoo!.