Stock Picks: Yahoo, Amazon

From Businesweeks

Yahoo Inc. (YHOO)

Citigroup reiterates buy; raises estimate

Yahoo Inc., owner of the second-most-used Internet search engine in the U.S., reported fourth-quarter sales that topped analysts’ estimates after the close of trading Jan. 26. Excluding revenue passed on to partner sites, sales were $1.26 billion. The company’s total sales fell 4.1% to $1.73 billion, yet still edged out its own forecast of $1.6 billion to $1.7 billion.

Citigroup analyst Mark Mahaney said on Jan. 27 that Yahoo’s $1.73 billion in gross revenue and $457 million in earnings before interest, taxes, depreciation and amortization, or EBITDA, beat his respective estimates of $1.66 billion and $427 million and Wall Street consensus views of $1.67 billion and $433 million; Yahoo’s GAAP earnings per share (EPS) of 11 cents was in line with his estimate as well as the street consensus view. Mahaney said in a note that Yahoo’s first-quarter guidance was mixed vs. the Street estimate: the company’s midpoint gross revenue forecast of $1.63 billion topped the Street expectation at $1.61 billion, but its midpoint EBITDA forecast of $365 million missed the Street projection at $400 million.

Mahaney said the big story for Yahoo is display advertising, which surged 26% quarter-over-quarter to $503 million. He noted that most (though not all) of the company’s ad verticals are recovering, pricing is “firming up”, and Yahoo has key inventory for advertisers.

The analyst kept his 2010 EPS estimate at 47 cents, but raised his 53 cents forecast for 2011 to 56 cents. He has a $22 price target on the shares.

Amazon.com Inc. (AMZN)

Kaufman Bros. upgrades to buy from hold

Kaufman Bros. analyst Aaron Kessler raised his rating on shares of Internet retailer Amazon.com Inc. on Jan. 27. He said in a note that the stock has corrected 15% from recent highs, and he believes it now offers an attractive risk/reward for investors.

Kessler said he expects Amazon to post strong fourth quarter results on Jan. 28, adding that his GAAP EPS estimate of 77 cents is 7% above the Wall Street consensus view. He also expects Amazon to continue to gain market share, “driven by its value proposition of low prices, free shipping, high trust factor, and added selection”.

The analyst maintained a $155 price target on the stock, indicating “approximately 30% upside” from current levels.