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A Yahoo billboard in Times Square, New York (Spencer Platt/2009 Getty Images)
A Yahoo billboard in Times Square, New York (Spencer Platt/2009 Getty Images)

Eye on Equities

Yahoo upgraded to a 'buy' as odds of a sale seen high Add to ...

Citing his belief that there is an 80 per cent chance the company will soon be acquired, Stifel Nicolaus analyst Jordan Rohan today upgraded the beleaguered Internet giant Yahoo Inc. to a “buy” from a “hold.”

It’s been widely reported that several private equity firms and other strategic buyers are weighing a bid for Yahoo, whose board earlier this month ousted its CEO, Carol Bartz.

The company has been suffering from stagnant revenues at a time when several of its key competitors, such as Facebook and Google, have seen robust growth. Mr. Rohan thinks the weakening financial performance has “prioritized the outright sale of the company.”

“At some level, bad means good (for Yahoo shareholders), as faltering fundamentals weaken the case that Yahoo should remain independent,” Forbes quoted the analyst as saying.

Given the search partnership that it reached a couple years ago with the Internet firm, he figures Microsoft Corp. could play a role in any coming private equity deal.

Mr. Rohan said a bid could be worth as much as $22 (U.S.) a share, contending that Yahoo’s stake in China’s Alibaba Group alone is worth about $10 a share.

Upside: Mr. Rohan set an $18 per share price target.

Fertilizer producer Mosaic Group Inc. will be included in the S&P 500 index as of Friday, replacing National Semiconductor Corp. “We believe that the inclusion of MOS into the index will provide some floor support for the stock, as index-tracking funds begin to build positions in the name,” commented Scotia Capital Inc. analyst Ben Isaacson.

Upside: Mr. Isaacson maintained a “sector perform” rating and $80 (U.S.) one-year price target.

Canaccord Genuity analyst Steve Toth is concerned about the slippage in the timing of key planned activities at Southern Pacific Resource Corp.’s McKay steam-assisted gravity drainage oil project in Alberta. Based on the company’s most recent presentation, some activities have been pushed back by up to two months, and this could delay first oil, according to Mr. Toth.

Downside: Mr. Toth cut his price target by 20 cents to $1.90 and maintained a “speculative buy” rating.

The Pulp and Paper Products Council has released uncoated free sheet industry statistics that reveal higher operating rates and continued low inventories. This suggests, according to Raymond James Ltd. analyst Daryl Swetlishoff, that Domtar Inc. can continue to generate strong free cash flow in coming quarters. He also believes current valuations are “extremely cheap,” with the stock trading at 2.3 times estimated 2012 EBITDA.

Upside: Mr. Swetlishoff maintained a “strong buy” rating and $125 (U.S.) price target.

With pricing trending higher across all its products and solid underlying supply and demand fundamentals, cellulose-based specialty products manufacturer Buckeye Technologies Inc. represents an attractive investment opportunity, said RBC Dominion Securities Inc. analyst Paul Quinn. “Buckeye’s leading position in specialty dissolving pulp positions it to benefit from very strong prices and an attractive growth profile over the longer term,” he commented.

Upside: Mr. Quinn initiated coverage with an “outperform” rating and $33 (U.S.) price target.

Hecla Mining Co. has adopted a common share dividend policy that links payouts to the company’s quarterly average realized silver price. At $40 an ounce silver and the current share price, this would amount to an annual yield of 1.6 per cent. “While modest, we still view this new dividend favourably,” said UBS analyst Chris Lichtenheldt.

Upside: Mr. Lichtenheldt maintained a “buy” rating and $11 (U.S.) price target.

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