Analyst Sees Sothebys' EPS Growth Held Back Buy Costs, Competition

Sotheby's (NYSE: BID) earnings growth will be held back by lower-than-expected cost cutting as well as competitive pressure on its commission margins, an analyst said Tuesday.Craig Hallum's George Sutton downgraded the art auction company to Hold, from Buy, cutting his target more than 4 percent to $46 a share.Sotheby's, off about 4 percent since the company missed fourth-quarter earnings expectations Monday, changed hands recently at $42.79, down $0.55.Sutton said he'd been bullish on Sotheby's since last autumn around the time Chief Executive William Ruprecht announced his resignation.Ruprecht had been under fire from activist investor Daniel Loeb's Third Point LLC hedge fund, which holds a 9.6 percent stake in Sotheby's and gained two seats on Sotheby's board in May.Sutton said that last fall he saw "an ideal scenario for the sale of the business," but noted that since then, the company's search for a successor to Ruprecht has dragged on.Sutton said he's "stepping to the sidelines" until changes in "acquisition dynamics" materialize or costs and margins improve.Sotheby's expects additional spending on staffing as well as marketing to boost its share of so-called middle market art sales, which Sutton said suggests that cost cutting 2014 which saved $13 won't be continued.Activist shareholder Mick McGuire of Marcato Capital wrote to Sotheby's last month seeking a $500 million stock buyback and the sacking of Chief Financial Officer Patrick S. McClymont.McClymont on Monday pointed to an earlier press release and said the company is "very focused on the CEO transition" and it will "hold off on capital return."