Top-rated analyst says Verizon-Yahoo deal may fall through

Published Tue, Oct 18 201610:23 AM EDT

Top-rated analyst Laura Martin of Needham downgraded Yahoo to hold from buy on Tuesday, citing a potential withdrawal of Verizon's $4.8 billion offer to buy the ailing internet giant. "We worry that VZ will walk away or renegotiate its acquisition price lower owing to a 2014 hacking event that YHOO had not disclosed," Martin wrote in a research note. Yahoo announced the 2014 the hacking last month. Martin's picks have a 20 percent one-year average return with a 70 percent success rate, according to analyst ranking service TipRanks, placing her in the top 1 percent of all Wall Street analysts covering any industry. Here's her investment thesis, and why she thinks Yahoo shares may have reached a ceiling. In September, Yahoo revealed personal information from 500 million users had been stolen by hackers in 2014, an event that had not been previously disclosed to any potential bidders, including Verizon. "We lower our estimates for 3Q16 [third quarter], and FY16 [fiscal year] to reflect recent channel checks that indicate employee morale is low and they are distracted by Yahoo's impending acquisition by Verizon," Martin wrote. Apart from the hacking, Martin said an increasing number of advertisers are redirecting their dollars from Yahoo toward other mobile applications, a trend that's expected to hit earnings. She said third-quarter revenue, which is scheduled to be released after the market close on Tuesday, will come in at around $845 million, a 16 percent decrease from the same period a year ago and 2 percent below estimates. Meanwhile, adjusted earnings per share could dip to 12 cents, down 21 percent from a year ago, and 7 percent below estimates. "The fact that YHOO canceled its 3Q16 earnings call for Tuesday, Oct 18th also troubles us," Martin wrote. This year, shares of Yahoo are up nearly 26 percent, placing the stock 6 percent above Martin's 12-month price target of $40. Verizon said last week the hacking had "material" impact, allowing it to withdraw or alter the Yahoo deal. Verizon said it would be on Yahoo to demonstrate to the wireless company the full impact of the hacking. Source: FactSet —CNBC's Michael Bloom contributed to this story

Yahoo CEO Marissa Mayer

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Top-rated analyst Laura Martin of Needham downgraded Yahoo to hold from buy on Tuesday, citing a potential withdrawal of Verizon's $4.8 billion offer to buy the ailing internet giant.

"We worry that VZ will walk away or renegotiate its acquisition price lower owing to a 2014 hacking event that YHOO had not disclosed," Martin wrote in a research note.

Yahoo announced the 2014 the hacking last month.

Martin's picks have a 20 percent one-year average return with a 70 percent success rate, according to analyst ranking service TipRanks, placing her in the top 1 percent of all Wall Street analysts covering any industry.

Here's her investment thesis, and why she thinks Yahoo shares may have reached a ceiling.