Morgan Stanley initiated coverage on Yahoo! Inc. (NASDAQ: YHOO) Thursday with an Overweight rating and a $55 price target.

Analysts, led by Brian Nowak, felt the stock was an an attractive way to purchase Alibaba Group Holding Ltd (NYSE: BABA) at 21x 2016 EPS.

Nowak thought Alibaba was undervalued and saw a tax efficient outcome for the company's SpinCo.

The analysts were "bullish on BABA's industry leading position and long-term monetization opportunity" and valued it at $102.30 per share.

The "tax efficiency plus expected BABA price appreciation (we see ~22 percent upside from current levels) makes YHOO's stake in BABA worth ~$38/YHOO share (~70 percent of our $55 PT and ~85 percent of YHOO's current ~$45 share price)," according to Nowak.

Yahoo! Base Case Valuation

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With Yahoo's core trading at negative $5 per share based on the assumptions in the note, the analysts remained bearish on the core, however any "improvement or stability" in the core would be "upside" for the stock.

Risks to the analysts' call included the "inability for [the] SpinCo to remain tax free, lower than expected BABA long-term value, worse than expected core results, new margindestructive search distro deals, acquisitions."

Yahoo! Inc. closed at $44.47 on Thursday, up 0.61 percent.

Latest Ratings for YHOO

Date Firm Action From To Mar 2015 Morgan Stanley Initiates Coverage on Overweight Mar 2015 Axiom Initiates Coverage on Buy Feb 2015 Nomura Maintains Buy

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