Morgan Stanley is positive on Yahoo (NASDAQ: YHOO) saying it continues to be one of the more controversial stocks under their coverage. Controversy can often lead to opportunity. The controversy stems from four main investor concerns around 1) execution; 2) the transition to a new management structure; 3) the launch / success of Yahoo!'s new search ad platform ("Project Panama"); and 4) limited visibility in the company's branded advertising segment.
Although these concerns aren't without merit, firm's thesis remains that although they believe there remains a period of transition for Yahoo! over the coming months, they can't help but see YHOO shares at current levels as a good entry point for investors with 1) a 6-12 month perspective and 2) tolerance for volatility in the short term (1-6 months).
Firm's optimism is driven by several beliefs. First, based on experience with the front-end of Yahoo!'s new search product and conversations with advertisers / agencies / Search Engine Marketers (SEMs) / developers / industry leaders to date, once Yahoo! completes transitioning its advertisers to the new platform, they expect Panama to be a vast improvement over Yahoo!'s prior offering and a more competitive product.
Second, they think the announcement in December related to Yahoo's management restructuring, although reflecting a company in transition, if executed effectively, could be a good thing for Yahoo! long term.
In short ,they think the new management structure, coupled with the launch of Panama, could create a more competitive / galvanized company that begins to execute more effectively in CH2:07E and beyond.And when there are signs that a company may begin to execute on fundamentals amidst overly negative investor sentiment, this usually means an opportunity (e.g. EBAY shares in August 2006), albeit not without risk.
Reiterates Overweight - Firm's Base Case DCF analysis values YHOO shares at $35.
Notablecalls: Not actionable but good to know category.