Thomson ReutersEric J. Shelton/Reuters
Drew McReynolds, an analyst at RBC Dominion Securities, had been hoping that Thomson Reuters Corp. would return to "normalized" growth next year, following a lengthy soft patch that followed the financial crisis and digestion of the Reuters acquisition in 2008. Normalized meant better margins, higher share price valuation and rising investor sentiment.
Now, he's having second thoughts, and they coincide with the recent announcement of a management shakeup within the company. Mr. McReynolds downgraded the stock to "sector perform" from "outperform" and cut his price target to $42 from $46 (after cutting the target from $48 just last Friday).
The company's massive markets division, which sells financial data and analysis tools to investing professionals, has shown sluggish growth in recent quarters, and Mr. McReynolds thinks it is a stretch to expect organic growth of 5 per cent in 2012. Indeed, he thinks growth of just 1 per cent or 2 per cent is more likely.
"Notwithstanding [a]$2 to $3 (U.S.) of macro-driven upside potential in the stock, we believe investors should remain patient for a more timely entry point," he said in a note, released to clients on Monday. "Although in a global economic recovery scenario we see limited downside in the shares given current valuation, we now view the stock as largely range-bound pending better visibility on the growth outlook for Markets."
His expectations for normalized growth have now been pushed out to 2013. The change in views brings the analyst in line with his analyst peers, the majority of whom are not exactly upbeat about the stock, which has fallen 16.3 per cent since the end of April (in New York). According to Bloomberg, there are just six "buy" recommendations on Thomson Reuters, against 14 "hold" recommendations and four "sell" recommendations.
The company reports its quarterly results on Thursday.
David Berman