Investors are "essentially getting the core Yahoo! (YHOO +2.2%) asset for free" at current levels after backing out the value of its Alibaba (ABABA) and Yahoo Japan stakes, says SunTrust's Robert Peck, upgrading shares to Buy and setting a $40 PT.
Peck assumes a $150B IPO and $200B post-IPO valuation for Alibaba, and expects the Chinese e-commerce giant to be worth $300B in a few years on the back of $10B in 2017 net income. A recent Chinese trip left him "astonished by the sheer size, scale, and long term potential" of the country's broader Internet market.
Yahoo was originally required to sell half of its remaining 24% Alibaba stake at IPO time. But a 2013 deal revision lowered the number of shares Yahoo has to sell back by 20%.
Yahoo's Q1 report, which should be accompanied by the release of Alibaba's numbers for seasonally huge Q4, is due tomorrow.