Sell Thomson Reuters, Goldman Sachs tells investors

Thomson Reuters’ financial services clients account for nearly 50 per cent of its revenues and Goldman believes the job cuts could amount to a three to five per cent drop in the number of users for the group’s desktop products in 2012.

“Thomson Reuters operates on a subscription model that means events from one year tend to impact the following year more profoundly, meaning deterioration from late last year will flow throughout 2012 results,” said Brian Karimzad, who is rated as a five-star analyst for the accuracy of his earnings estimates on Thomson Reuters. He also believes operating expense pressure at banks will limit the company’s pricing power.

The downgrade was the first analyst recommendation on TRI since chief operating officer James Smith replaced Tom Glocer as chief executive on 1 January.

“While we have confidence in Thomson Reuters’ new management team, we see few ‘quick fixes’ addressing deteriorating market share resulting from misdirected product development in the space,” Karimzad said.

He is in the minority of analysts urging investors to sell. Of the 19 analysts covering the stock, three rate it Sell, 13 have a Hold and three a Buy or a Strong Buy recommendation.

Goldman cut its six-month price target on the stock by $3 to $25. ■