AOL Time Warner ( AOL) analysts held an estimate-cutting party Wednesday morning.

Following America Online's investor presentation Tuesday outlining turnaround strategies for the online service, the response from sell-side research analysts was mainly tepid. Though Morgan Stanley was the only major brokerage house to cut its rating on AOL's parent company, analysts were near-unanimous in their wait-and-see attitude toward AOL's new broadband strategy and its claimed ability to bounce back in 2004.

Piling onto a 14% decline Tuesday, investors sent AOL Time Warner's stock down Wednesday by 67 cents, or 4.7%, to $13.54.

Gapping Down

Downgrading AOL Time Warner from overweight to equal weight, Morgan Stanley's Rich Bilotti and Mary Meeker acknowledged that AOL Time Warner may indeed trade at a discount to its Big Media peers. "However," they wrote, in line with the skepticism pervading Wall Street, "until evidence of sustainable cash flow growth at the AOL division is proven (unlikely before 2004), we do not expect the gap to close." (Morgan Stanley is advising Comcast ( CMCSA) regarding its stake in AOL Time Warner-controlled Time Warner Entertainment.)

Though AOL executives are aiming for double-digit percentage growth in the division's earnings before interest, taxes, depreciation and amortization starting in 2004, Merrill Lynch's Jessica Reif Cohen counted herself on the jury that's still out. The key variable in figuring this out, she said, is the financial impact on AOL of the migration of dial-up online users to broadband connections. The long-term growth rate investors should expect from AOL wasn't adequately addressed, Cohen said. (Like Morgan Stanley, her firm is also advising Comcast regarding TWE.)

Bear Stearns' Ray Katz agreed that the economics of broadband are unclear, but he deemed execution to be the biggest risk facing AOL. (Bear Stearns advised AOL Time Warner in the TWE transaction.)

Waiting for Payday

As AOL executives spotlighted a number of money-making initiatives, analysts were cautious at best about when would pay off. Salomon Smith Barney seemed relatively optimistic in its assessment that the efforts wouldn't be tangible before the second half of 2003. Meanwhile, Goldman Sachs suggested it would be "several years" before any of AOL's envisioned commerce and premium services would have any meaningful payoff.

Some analysts were almost wistful about the ground that AOL Time Warner appears to have lost in the nearly two years since the merger of AOL and Time Warner. The Morgan Stanley analysts wrote that they couldn't recall a business in a "dynamic/competitive consumer-oriented technology-related market" recovering to sustainable growth after ceding so much ground over two years. Salomon Smith Barney noted that elements of the turnaround plan harkened back to the ideas thrown around in the early days of the merger.

Oh well. As AOL Time Warner CEO Dick Parsons has been quoted as saying, "Get over it."