Stifel Hits Sotheby's With Downgrade As Art Market Keeps Getting Worse

Stifel's David A. Schick has downgraded the rating on

from Buy to Hold. Schick noted that the art market continues to be soft, with sales falling 44 percent year on year to £69.5 million at Sothebys' Contemporary Evening Sale in London on February 10, as compared to the estimate of a 21 percent decline. Apart from the declining art prices, Schick also noted that part of the decline in sales was due to four lots being withdrawn. In addition, the Stifel report stated that "Amy Cappellazzo (who was part of AAP which was acquired by BID) was active during the auction. We continue to look for details on accretion driven by the AAP acquisition." Given the weakness in the art market, Schick believes that Sothebys might need to use commission incentive to attract business, and expects the topline and margin estimates to continue to decline in 2016. "We do still believe there remains a long-term opportunity to drive better shareholder returns from modernizing the business model, adding new talent, and extracting value from London and NYC headquarters," Schick added. Also, the analyst believes that the share price could improve, driven by "a more inflationary tone to equity markets." The EPS estimate for 1Q16 has been lowered from $(0.18) to $(0.25).