Lehman's Holly Becker raised her rating on the Web portal's stock from "market perform" to "buy" and set a price target of $20.
"Much has changed in recent months: Estimates have again come down, we are beginning to see management changes, and the stock is down another 71 percent from its 2001 high," she wrote. "We now ask ourselves again, is it time yet? WE THINK IT IS!"
Shares rose $2.81, or 22 percent, to $15.25 by the 1 p.m. PT close of regular trading. Yahoo's stock has plunged from a 52-week high of $173, including a 71 percent dip since January. Last month, the company warned investors its revenue would fall well below expectations and announced the departure of CEO Tim Koogle.
Yahoo is scheduled to release first-quarter results April 11. Analysts are expecting a breakeven quarter, with revenue coming in around $172 million, according to First Call.
Not all analysts are as bullish as Becker. Jefferies analyst Frederick W. Moran, who maintains a "hold" rating on the stock and a $10 target price, said in a recent note that "with increasing uncertainty, no visibility on financial projections, as well as senior management concerns, we believe Yahoo's stock likely will see further downside near term."
But Becker did offer plenty of qualifiers for her optimism on Yahoo.
"We recognize that we may be a bit early and that this may not be the absolute bottom for Yahoo's earnings or even its stock price," she wrote. "However, if we wait for evidence of a turnaround, it will almost certainly be too late. We are now convinced that the worst is over and that the risk-reward on the shares is favorable for investors with a longer-term horizon."
Becker said that with the upcoming changes in management, the company should be in a position to overhaul many of its business practices. And although she outlined many potential problems, she highlighted a few areas the company can work on to boost its profits: improving its advertising offering, lowering expense bases, charging for premium services, and charging for placement on its channel pages.
Marketing and sales expenses, currently around $445 million, have "room to come down, as does their cost of sales," Becker said. She hinted that the company may need to lay off workers, something Yahoo has so far managed to avoid.
Charging for premium services--a concept the company has recently begun to test with a fee-based, real-time stock quote service--should also help boost its profits. Becker estimated that if Yahoo could get 5 percent of its users to pay $10 a month for services, that would boost earnings by 33 cents per share.
Charging partners for placement on the company's channels could also bring in some bucks, Becker said. Yahoo recently began partnering on some of its channels, including deals with Internet recruiting company Headhunter.net and online travel agency Travelocity.com, and Becker said that more deals would help boost revenue while lowering internal development costs.
Looking forward, Becker said she expects the company to report revenue of $170 million for the first quarter, with earnings coming in at breakeven. She sees the second quarter hitting the trough, with sales of $150 million and a loss of 2 cents per share.
For the full year, Becker said she expects revenue of $700 million and breakeven earnings.
She based those figures on a 35 percent growth in Yahoo's business segment, which Wednesday signed a deal with German software company SAP to develop portal sites. Becker said she expects dot-com advertisers and e-commerce partners to account for only 14 percent of revenue, while traditional advertisers will account for 35 percent of total sales.