Citi Assigns New Rating on Yelp (YELP)

Yelp (YELP) is up almost 5% to $65.78 in Wednesday’s early market trading hours, after being upgraded by Citi (C)’s Mark May from ‘Neutral’ to ‘Buy’.

In a note client this morning, May wrote that recent drop in the stock’s value should be seen as an opportunity for future gains. According to the analyst, one of the keys in assessing Yelp’s current fair value is its recent pullback, most of which he believes is technical, thus creating the conditions for a potential bounce back.

[via The Economic Daily] “1) we believe the recent pullback, most of which we believe is technical, creates a buying opportunity; 2) we are confident in near-/long-term forecasts and are increasing our out-year estimates as a result of our new TAM analysis; 3) as our ‘size of the prize’ analysis herein shows, we believe Yelp is early in penetrating its serviceable TAM and, thus, can generate a 32% revenue CAGR over the next five years; 4) we estimate a 56% 5-year adj. EPS CAGR given our TAM/revenue outlook combined with the inherent margins of the business model; and 5) we view Yelp as having strategic value given the increasing importance of mobile and local Internet and its strong positioning therein” May said.

The analyst has a $76 price target on the stock, which represents 17% upside from current levels.

Shares of Yelp closed Friday down $4.85 to $65.76.