In active trade on Wednesday, Yahoo Inc. (NASDAQ: YHOO) stocks increased by 3.4 percent after analysts said that the selloff concerns regarding the derailing of the company’s tax-free spinoff of its Alibaba stake, was excessive.
According to FactSet, the volume of 20.2 million shares at 10am Eastern were already far over the full-day average of around 14.8 million shares.
Meanwhile, Internal Revenue Service (IRS) representatives said on Tuesday that it plans to study its own rules for the issuing of private letter rulings with regards to business requirement or active trade in spin-offs. The IRS also added that they would, in the meantime, stop with the processing of new ruling requests.
Yahoo’s stock plummeted 7.7% in the last hour of regular trade on Tuesday and closed at $40.98. This marked an 8 month low.
Morgan Stanley analyst, Brian Nowak, said that although the study from the IRS could “complicate” the outstanding spinoff of Alibaba Group Holding Ltd. (NYSE: BABA)’s stock, Nowak believes the selloff on Tuesday already reflects almost fully the worst outcome. Added to this, the selloff also created an opportunity for investors to buy.
Even if the company is no longer able to spinoff, tax free, its stake in Alibaba, or Yahoo Japan, and decides to still sell its assets at the full 35% corporate tax rate in the U.S., Nowak believes that buying the stock at a discounted price of $41.50 seen on Tuesday, offered a potential of 8% upside.
Also, Youssef Squali, an analyst at Cantor Fitzgerald, also reiterated his buying rate, and said at the levels seen on Tuesday, the stock offered some compelling value on sum-of-the-parts bases and discounted-cash-flow. Even if the spinoff were to be fully taxed, he says the fair value for the company’s stock is around $44, or 7.7% above Tuesday’s closing price of $40.98.
According to the latest regulatory filing, Yahoo currently owns 383.6 million shares of Alibaba, or 15.4% of the e-commerce giant’s shares.
MT4 Chart: Yahoo
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