Yahoo Stock Rallies on Better-Than-Expected Results and Verizon Deal
Yahoo! Inc. (NASDAQ:YHOO), may have gotten itself into trouble over the past month. The e-mail security breach has hurt the company. Yahoo stock has reflected the damage, dropping from over $44.00 to about $41.00.
It could have dropped further, if it weren’t for the good news. The sale agreement with Verizon should work out.
For Yahoo stock, it’s a good thing that the e-mail debacle came out when it did. It gave the company a chance to rid itself of the “garbage.” It performed a house-cleaning before the new owners move in, so to speak. The house-cleaning will benefit investors because Yahoo stock is already moving higher, having found a bullish wind again.
YHOO stock was trading at almost $43.00 on October 19, and Oppenheimer Holdings Inc. (USA) (NYSE:OPY), the large investment fund manager, reiterated an “outperform” recommendation, setting a target of $54.00. Oppenheimer never relented on Yahoo’s prospects, as it expected Verizon Communications Inc. (NYSE:VZ) would not want to miss on the chance to grab such a social media potential asset as Yahoo stock. (Source: “Oppenheimer Remains Bullish on Yahoo! (YHOO) – PT Cut to $54,” StreetInsider, October 19, 2016.)
The Bullish Potential of the Yahoo Deal with Verizon Has Not Faded
Indeed, we at Profit Confidential did not relent either on the fact that for Verizon, Yahoo is too valuable to pass up. But that’s not all. Yahoo’s results managed to set its e-mail scandal totally aside as the media has been caught up in another more interesting one, courtesy of the “Hillary Clinton for President” extravaganza, now coming to a town near you! There’s that, and the fact that the third-quarter results and the outlook for the fourth beat market expectations.
So, after all that, it seems the e-mail scandal was good for some investors. It offered them a chance to get into Yahoo stock on the cheap, leaving the opportunity for another rally. The Yahoo-Verizon story could be likened to the plot line of a typical episode of the 1970s/1980s classic TV series, The Love Boat.
Potential lovers meet, they like each other. One of them reveals a potential deal-breaker, a flaw, a mole, a pimple, or maybe the presence of really ugly man-sandals in the woman’s cabin’s closet. Drama ensues, people walk out onto the deck in the starry night. The Love Boat theme is played in a somber minor key. After the tears and some reflection, the two realize they need each other, and the deal is sealed.
The only difference is that in The Love Boat, love is life’s sweetest reward. In the case of YHOO stock, the sweet reward for patient investors is a nice upside and good old-fashioned profit.
During the earnings presentation, the less-embattled-than-usual CEO Marissa Meyer said that Yahoo “was preparing for integration” with Verizon, all but confirming that the deal would go ahead. But here’s the best part. Verizon had demanded a $1.0-billion discount on the original offer price. Oppenheimer said it expects the transaction to proceed with little, if any, change to the original deal. (Source: Ibid.)
Still, the deal, which will likely close in early 2017 after shareholders have a chance to approve it—there’s little chance of a rejection—could keep YHOO stock in calmer, but still rough waters. More rumors and revelations may emerge, maintaining volatility even if Verizon CEO Lowell McAdam was more optimistic.
Commenting on Yahoo’s stronger-than-expected third-quarter performance and fourth-quarter guidance, McAdam stressed that the logic of the deal “makes a lot of sense.” (Source: “As earnings beat, Yahoo says it’s still preparing to merge with Verizon,” CNBC, October 18, 2016.)
This is why Yahoo stock’s scenarios are even more bullish now than before the e-mail security breach scandal.