Shares in mobile phone giant Motorola (MOT) dropped sharply Wednesday after a Salomon Smith Barney analyst sliced his rating and his price target for the company.
Alex Cena, in a report issued Wednesday morning, called his previous estimates "too optimistic because too many events have to have a very positive outcome" in reducing his price target for the next 12 months from 200 to 120. Cena also cut his rating from outperform to buy.
Motorola shares tumbled 13 15/16, or 13% to 90 9/16 in midday trading. (Motorola closed down 18, or 17%, at 86 1/2.)
Cena wrote that because Motorola will be revamping 70% of its product line in an attempt to move into data enabled phones at a time when equipment is expensive, it is unlikely the company will meet his previous margins estimates. Cena had called for Motorola to reach 11% operating margins in the fourth quarter; he now projects a figure closer to 10%.
Last month, Motorola
told analysts and investors that it would fail to meet profit expectations for the second-quarter, in part because higher equipment costs are squeezing operating margins. Schaumburg, Ill.-based Motorola, the world's second-biggest maker of cell phones, said second-quarter earnings would come in at 67 cents per share, three cents short of consensus estimates. Motorola is scheduled to report second-quarter earnings in July.
analyst Michael Ching responded with a note of his own Wednesday, saying that Cena's report did not "raise any new issues, especially in the area of cell phones and the return to double digit operating margins." Ching reiterated his buy rating on the stock.