Yahoo upgraded by analyst on organizational revamp

NEW YORK - An analyst upgraded Yahoo Inc. Friday in light of coming organizational changes that could make the Internet-search giant more efficient and competitive in its product offerings.

Thomas Weisel analyst Christa Quarles said that while she still has reservations about some of the longer-term issues surrounding Yahoo, changes in company structure and the stock's recent underperformance could serve to boost shares in the near term.

She upgraded the Sunnyvale, Calif., company to "Market Weight" from "Underweight." Quarles also raised her 12-month price target to $16 from $11.

The analyst raised her 2009 earnings estimate excluding one-time items to 37 cents per share from 35 cents, but shaving her revenue forecast to $4.78 billion from $4.82 billion. For 2010, her pro forma earnings estimate rises to 45 cents per share from 41 cents and revenue falls to $4.97 billion from $5.04 billion.

While noting that Microsoft Corp. still expressed interest in acquiring Yahoo, the analyst believes that a combination is increasingly unlikely given that Yahoo's core search business has shown no signs of eroding. As such, Microsoft would have to put in a higher buyout bid for Yahoo to accept.

Quarles said there has been talk of an advertising rebound, but she believes the picture remains cloudy: "We could yet experience several false starts."

Yahoo wants to create a "wow" experience with their finance, email, news, sports and entertainment products, but it's still not clear how they can pull it off, the analyst said.

"We are still unsure of Yahoo's successes longer term in terms of improving its products and market share," she said a research note. "However, we believe that organizational improvements alone could be sufficient for short to medium-term gains, particularly when vetted against the relative underperformance to date."

Shares of Yahoo gained 13 cents, up to $14.68 in premarket trading.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.