Thomson Reuters stock to underperform - analyst
Wednesday 19 November 2008
Thomson Reuters shares are likely to underperform until investors feel that the markets division has bottomed, which may not happen until the first quarter of 2010, UBS analyst Jeffrey Fan told clients on Wednesday.
He maintained his Sell rating on the stock and $23.50 price target. It closed at $23.77 on the New York Stock Exchange on Tuesday.
Fan said Thomson Reuters is in much better shape to weather retrenchment among investment banks than during 2001-2004 when the sector saw a 10 per cent staff reduction. During that period the markets unit saw an 18 per cent decline in revenues from peak to trough.
This time, Thomson Reuters could take some market share from Bloomberg, given the performance of foreign exchange versus fixed income. But the market environment is arguably worse. An estimated 15 to 20 per cent of the investment banking headcount has already disappeared.
Thomson Reuters’ Q3 results announced on 12 November showed that markets revenues beat consensus estimates, suggesting a modest decline in revenues, Fan said. However, he attributed this strength to transaction revenues driven by volatile foreign exchange and commodity markets, which may not be sustainable. Hence reiteration of his Sell rating.
Thomson Reuters’ New York-listed shares have fallen more than 40 per cent year-to-date but in Toronto they are down only 27 per cent. ■
- Seeking Alpha