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Goldman Sachs downgraded Thomson Reuters Corp. (TRI-N) to 'sell' from 'neutral,' saying job cuts at its banking and financial customers will result in reduced product subscriptions and hurt results at the company through 2012.
Job cuts at the news and information provider's financial services clients -- who account for nearly 50 percent of revenue -- could amount to a 3 percent to 5 percent decline in the number of users for its desktop products in 2012, Goldman Sachs said in a note to clients.
"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," analyst Brian Karimzad said.
In addition, operating expense pressure at banks will limit pricing power, and the uneven rollout of the company's new flagship desktop product for financial clients, Eikon, limits its ability to use innovation as a "price lever," Karimzad said.
Karimzad is a five-star rated analyst for the accuracy of his earnings estimates on Thomson Reuters, according to Thomson Reuters' StarMine data.
Of the 19 analysts covering the stock, three rate it 'sell,' 13 have a 'hold' and three a 'buy' or a 'strong buy' recommendation.
Thomson Reuters' stock has dropped 32 percent from a more than three-year high of $42.14 US it hit in February last year, as its financial clients laid off tens of thousands of employees and slashed costs.
Last year, the company underwent structural changes and management shake-ups to address the lackluster performance of its Markets business, which serves financial institutions. In January, its chief operating officer Jim Smith replaced Tom Glocer as chief executive.
"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," Goldman's Karimzad said.
The brokerage cut its 6-month price target on the stock to $25 from $28.