Another upgrade this morning, this time from Merrill Lynch...
Sotheby's Holdings Raised to Near-Term 'Accumulate' at Merrill
Princeton, New Jersey, Dec. 22 (Bloomberg Data) -- Sotheby's Holdings (BID US) was raised to near-term "accumulate" from near-term "neutral" by analyst Mark R. Miller at Merrill Lynch & Co. The 12 to 18-month target price is $35 per share. The long-term rating remains "buy".
I've got that fella's research report, here are some highlights:
1) Raise I/T rating to Accumulate as shares could be favorably revalued as BID is expected to announce its strategy in coming months to expand through online auctions. Maintain long-term Buy rating and estimates.
2) Believe core auction business is fairly valued at $22-23, implying current $5-6 value in stock for internet "call option." For purposes of this analysis, we assume the internet potential may be valued at $13 for a 12-18 mo. price obj. of $35.
3) Limiting factors include the challenge of broadening its customer base without offending current high-end clientele.
4) One of our concerns about the core auction business has diminished somewhat as BID secured it single-owner sales this Fall without the requirement of guarantees, implying a more favorable competitive structure.
5) We don't know precisely what Sotheby's strategy will be for on-line auctions because these decisions remain under review and management is not commenting. One certainly, however, is the internet should be viewed as an incremental distribution channel. Sotheby's has tremendous access to property but is limited by time and space available to showcase the lots. Many consumers also believe Sotheby's auctions are not affordable. Suprisingly, 80% of the lots sold are below $5,000.
6) Sotheby's p/e has been at/above the market multiple through most of the 1990's, partly because EPS were depressed after the crash of the art market in 1990-1991. Considering the uneven, but generally stable, trend of the art market, we believe fair value for Sotheby's core business is 20% discount to the S&P overall (22x 1999 EPS) implying $22-23 value excluding internet potential.
7) ... we believe the upside could be substantially larger considering the valuation of comparable on-line auction companies.
He cites one risk is the fact that only 15% of the outstanding shares "actively floats", and that if the market for net companies turns south, that BID could be negatively affected.
later,
geoff
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