Merrill Lynch Cuts DaimlerChrysler to Reduce

Analyst Stephen Reitman expects a dividend cut and a flat or negative total absolute return

Merrill Lynch cut its rating on DaimlerChrysler (DCX ) shares to near term reduce from neutral.

Analyst Stephen Reitman said that Chrysler's better than expected second quarter results do not vouchsafe a turnaround. The company will now have to match higher incentives from Ford and GM, and counter aggressive incursions by Japanese brands, he said. The analyst questions the company's promise for Chrysler to exceed 1999's peak earnings by 2003, when margins are likely to be at best half of 1999's.

This, plus increasing participation in troubled Mitsubishi Motors, underscores the extent that the mix has moved from premium to mass market (lower multiple), Reitman said. He is factoring in an expected dividend cut, and total absolute return over the next 12 months will be 0 or negative.

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