UBS Analyst: Thomson Reuters Vulnerable to Economic Slowdown

Thomson Reuters Corp. (TRI) looks poised to deliver second-quarter results just above expectations, but investors should focus on the outlook over the next two years, says UBS analyst Jeffrey Fan.

Reuters' revenue fell 17% during the bear market in 2002, and while Mr. Fan believes the company will fare better this time around, he sees considerable downside risk to consensus estimates of flat revenue growth over the next two years.

Thomson Reuters markets business is susceptible to downturns in the financial services sector because the company depends on banks and insurance firms to buy the data and equipment it produces.

In a note to clients on Wednesday, Mr. Fan wrote:

If consensus estimates hold, then [Thomson Reuters] still trades on a premium to its peers.

Mr. Fan's worst case scenario is a 50% drop in earnings per share next year if the company suffers on the same level it did in the last downturn. He has a "sell" rating on the stock.

Of the analysts Bloomberg lists as covering Thomson Reuters stock, nine have "buy" recommendations, five have "hold," ratings and four have "sell" ratings. The company reports its second-quarter earnings on Aug. 12.