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6 reasons Yahoo has more upside than you think, Citi analysts say

Citi just gave Yahoo investors some good news.

Analysts at the investment bank upgraded Yahoo's stock to "buy" from "neutral" on Wednesday, and raised their price target on the stock to $43 per share from $38 a share, citing six factors that "create a more compelling risk/reward" for the stock.

The first factor is the "recent credible news reports and [management] commentary about the auction process," referring to the tech firm's sale of its core business.

Telecommunications giants Verizon and AT&T were set to to go through to the third and final round of bidding in the auction for Yahoo's core internet assets.

On Monday, Reuters reported, citing people familiar with the matter, that telecommunications giants Verizon and AT&T were set to to go through to the third and final round of bidding in the auction for Yahoo's core internet assets.

Marissa Mayer, President and CEO of Yahoo.
Elijah Nouvelage | Reuters
Marissa Mayer, President and CEO of Yahoo.

The second and third factors involve Citi's valuation of Yahoo's stock and it "known near-term catalysts."

"We believe at current levels YHOO's price implies a 30-35% discount to the underlying market values for the company's stakes in [Alibaba] and [Yahoo Japan] and a $2-4bn value for Yahoo!," Citi said in a Wednesday note to clients.

Speaking of Alibaba, the Chinese e-commerce giant is at the center of Citi's fourth and fifth factors, as its positive outlook and Softbank's sale of Alibaba shares are both constructive for Yahoo.

Alibaba said Tuesday at its investor conference that it expects about $912 billion in gross merchandise volume by 2020. Meanwhile, Softbank said June 1 it plans to sell $2 billion worth of shares to Alibaba, $400 million to the Alibaba Partnership and $500 million to an unnamed sovereign wealth fund.

Lastly, Citi cited Yahoo's stock performance since it downgraded it to neutral on March 22. Since then, Yahoo has advanced more than 5 percent, albeit in choppy trade.

YHOO March 22-ThursdaySource: FactSet

Entering Thursday's session, Yahoo shares had gained more than 12 percent for 2016, but were down 8.2 percent over the past 12 months. The stock ended the day slightly higher.

Disclosure: Citi holds a position in Yahoo stock worth at least $1 million.