Bob Peck Explains His 'Odd Call' Buy Rating On Yahoo

Yahoo! Inc. (NASDAQ: YHOO) reported mixed second-quarter earnings on Tuesday. While revenue at $1.04 billion was slightly above analysts' estimates of $1.03, EPS of $0.16 came well below estimates of $0.18.

Robert "Bob" Peck, Internet equity analyst at SunTrust Robinson Humphrey, was on CNBC recently to weigh in on Yahoo's earnings and to discuss why he has a Buy call on the stock.

Outlook Disappointed People

"Search down about 3 percent, you had display up about 3 percent. Net-net, the top-line was basically flat line," Peck began. "When you look at their core properties, their core operating revenues actually was down a couple of percentage or so and this is done on increased operating expenses.

"So, EBITDA is down 20 percent plus year-over-year and, I think, what really disappointed people was the outlook for 3Q and further will be at a lower operating profit as well. They took down EBITDA guidance."

Related Link: Bob Peck Maintains Buy On Yahoo, "Despite Weakening Fundamentals"

An Odd Call

Peck was asked why he has a Buy rating on Yahoo right now. He replied, "It's sort of an odd call and the reason why is because right now the market is not giving any value for the core at all. If you just take Alibaba, the cash and their shares of Yahoo Japan, it's worth a lot higher.

"So, the market right now is not giving any credit for core Yahoo at all. And, we think, that even if they got a 2,3, 4 times EBITDA multiple – AOL got a 7 times multiple when it was taken out – that there is a lot of room upside in the stock potential."

Peck mentioned that he sees a 25 percent upside in Yahoo stock post IRS approving the Alibaba Group Holding Ltd (NYSE: BABA) stake spinoff.

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