* Raises Yahoo stock to "buy" from "hold"
* Keeps price target of $18
* Shares up 3 pct before the bell
Sept 22 Stifel Nicolaus said the likelihood of Yahoo Inc (YHOO.O) being bought out has risen to 80 percent, and upgraded the Internet pioneer's stock to "buy" from "hold."
Yahoo's shares rose 3 percent to $14.35 before the bell on Thursday.
"The erosion in fundamentals...along with pressure from activist shareholders has prioritized the outright sale of the company over the option to remain independent," analyst Jordan Rohan wrote in a note.
He has estimated a bid to range between $18 and $22 a share and said he continued to believe that the Alibaba Group was worth $35 billion, or $10 a share.
Much of Yahoo's valuation is ascribed to its roughly 40 percent stake in China's Alibaba, the parent company of websites including Alibaba.com and Taobao.
Rohan also said Microsoft Corp (MSFT.O) had the most to gain from the buyout of Yahoo for its display and search assets. It could play a central role in any private equity outcome, if it doesn't choose to pursue the role as an acquirer.
Private equity firms have turned their attention to Yahoo, which is reportedly seeking to sell itself after firing Chief Executive Carol Bartz on Sept 6 and attracting the ire of activist-investor Daniel Loeb. [ID:nS1E78I05M]
Yahoo's shares closed at $13.96 on Wednesday on Nasdaq.
(Reporting by Shravya Jain in Bangalore; Editing by Sriraj Kalluvila)
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