Canaccord Bullish On Thomson Reuters After 'Apparent Over-Reaction'

Thomson Reuters Corp TRI's warning last week that its costs are expected to more than double from tech investments and other initiatives prompted an "apparent over-reaction" in the stock throughout Friday's trading session, according to Canaccord Genuity.

The Analyst

Canaccord Genuity's Aravinda Galappatthige upgraded Thomson Reuters from Hold to Buy with a price target lowered from $44 to $43.

The Thesis

Thomson Reuters' announcement of around $550 million in extra expenses throughout 2018 and 2019 includes $150 million in stranded costs, $200 to $300 million in investments to reposition, and $140 million in corporate costs, Galappatthige said in a note. Perhaps more important, investors could "take comfort" in management's outlook for two reasons:

• The incremental corporate costs aren't new and were included in the $1.5 to $2.5 billion estimate given by management in conjunction with the F&R deal announcement.
• At the least, corporate costs will fall "materially" by 2020 to a minimum of $250 to $275 million.

Galappatthige said near-term uncertainty around what should be seen as "temporarily elevated corporate costs" and higher interest rates, a modest change to the stock's price target is warranted.

Price Action

Shares of Thomson Reuters were trading higher by about 2 percent Monday at $38.35.

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