Bernstein raises Yahoo, Google price target

(Reuters) - Sanford C. Bernstein raised its price target on Yahoo Inc (YHOO.O) and Google (GOOG.O), a day after the search engine giants reached an agreement to sell online advertising, but warned that disgruntled Yahoo shareholders may yet push for a deal with Microsoft (MSFT.O).

"We think the announced Yahoo-Google deal is worth only $3 per share to Yahoo shareholders... We think at a minimum that the current deal will result in further lawsuits which Yahoo will ultimately have to settle, further impacting the economics of the deal," analyst Jeffrey Lindsay said in a research note.

Microsoft's plan to establish a strong footing in online advertising suffered a big blow on Thursday as merger talks with Yahoo finally, formally failed and Yahoo said it would let Google sell search ads on its site.

Lindsay said the deal would add 4 cents to Yahoo's 2008 earnings per share, 16 cents to 2009 earnings per share or $3 per share to the company's stock price.

Google, which is resisting the U.S. economic weakness mainly through its online advertising model, will see the Yahoo deal generating revenue from the fourth quarter of 2008, the analyst said.

Lindsay raised his price target on Yahoo to $27 from $25. He has a "market perform" rating on the stock. On Google, Lindsay raised his price target to $765 from $750. He has an "outperform" rating on the stock.

Brokerage Stifel Nicolaus upgraded Yahoo to "buy" from "hold", but Needham & Co cut its rating on the company's stock to "hold" from "buy" and said the deal diminishes Yahoo's relevance among advertisers and strengthens the hand of Google.

Citigroup analyst Mark Mahaney cut his price target on Yahoo stock to $24 from $26, primarily based on valuation related to the new deal.

Soleil Securities raised its rating on Yahoo to "hold" from "sell," according to theflyonthewall.com.

Shares of Yahoo fell as much as 7 percent to $21.78 in morning trade Friday on Nasdaq. Google shares were up more than 2 percent at $561.16.

(Reporting by Bijoy Koyitty in Bangalore; Editing by Pratish Narayanan)