September 12, 2008 / 12:39 PM / 9 years ago

UPDATE 1-RESEARCH ALERT-Jefferies cuts Yahoo price target to $26

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Sept 12 (Reuters) - Jefferies & Co cut its price target on the stock of internet giant Yahoo Inc YHOO.O to $26 from $28, citing slower advertising and international markets.

Increasing number of advertisers are allocating their budget to “more performance-oriented channels, particularly search, and away from brand building formats such as display and sponsorships, where Yahoo dominates,” analyst Youssef Squali said in a note to clients.

However, there is a possibility of an upside to Yahoo’s stock if the company’s proposed search-advertising partnership with Google Inc (GOOG.O) goes through, the analyst said.

Google, with more than 60 percent of the internet search market, and Yahoo, with 16.6 percent, agreed in June on an advertising partnership under which Yahoo will let Google put search ads on its site.

However, the deal has raised concerns that it will give Google too much power in the $65 billion online advertising market, and the U.S. Justice Department launched a formal antitrust investigation in July.

“Recent signals from the DOJ suggest that scrutiny of the deal will intensify in the coming weeks, which may delay its implementation,” analyst Squali said.

“With the stakes running so high on both sides, and given the highly charged environment, we peg the possibility of the deal going through at 50/50 at this point.”

    If the deal with Google falls apart due to regulatory issues, Yahoo could still potentially outsource 100 percent of its paid search to Microsoft Corp (MSFT.O), if agreeable terms are reached, Squali added.

    The analyst lowered his 2009 earnings estimates for Yahoo to 55 cents a share, from 64 cents a share, and said the deal with Google could boost his estimate by 15 cents.

    However, Squali maintained his “buy” rating on Yahoo stock. “At current levels, we find the stock to be washed out and expectations non-existent, making the stock attractive.”

    Yahoo shares, which touched a more than four-year low of $17.25 earlier this week, closed at $18.55 Thursday on Nasdaq. (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)

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