NEW YORK — Merrill Lynch analyst Jessica Reif Cohen sent Time Warner stock on a wild ride Tuesday as she predicted a dismal third quarter for Warner Music and slashed her numbers for that division and the whole company.
Time Warner shares were even halted from trading briefly in the morning on an imbalance as at least some investors tried to bail. The stock dropped more than 8%. A market jittery over a big interest rate hike helped pull some other big entertainment issues down as well. Viacom, News Corp. and Disney all lost ground.
Time Warner declined to comment. But one company insider and several other analysts noted that Merrill’s estimates had been higher than many on the Street. Now Merrill’s are a bit lower.
Off-key music share
In her note to investors, Reif Cohen cited Warner Music’s declining market share, which she attributed to the strength of Seagram’s Universal Music and to weakness in such international markets as Germany, Brazil and Japan. Domestically, she cited Warner’s “weak release schedule and dependence on soundtracks as a source of album sales.”
As a result, she now expects cash flow from music to dip to $478 million this year from $493 million in 1998. The third, or current, quarter is the main problem, she said, with an anticipated 20% drop in cash flow.
Reif Cohen also sees bigger losses from the WB Network, of about $95 million this year instead of the $60 million she’d previously predicted, due to incremental spending.
Still a ‘buy’
However, Merrill Lynch still maintains a “buy” rating on Time Warner stock as well as a 12-month price target of $85, since the slowdown in music might be temporary.
Also drawing a positive analysis was the appointment of former Polygram exec Roger Ames — “an operating person with creative experience and an international background” — to run the music group. She sees music benefiting from Internet commerce, a more stable retail environment, the eventual recovery of overseas markets, cost cutting and the recent merger of CDNow with Columbia House, which Time Warner co-owns with Sony Music.
Time Warner shares closed off $5.50 at $60.69.