Lehman Brothers lowered its investment rating on shares of AOL Time Warner (AOL ) to market perform from buy.
Analyst Holly Becker says the downgrade was based on her new, lower-growth projections for the company's AOL division. Becker cites its slowing narrowband business, its costly broadband transition, the sluggish online ad market, and costs for European expansion. The stock recently dipped below $28 after several new data points surrounding the AOL division became apparent , suggesting that EBITDA growth will likely suffer as the company works its way through the broadband transition and the structural challenges facing online advertising. The stock trades at about 15.4 times EBITDA. Becker says her analysis suggests the market is valuing the AOL division at 21 times EBITDA, which she considers a rich multiple given the challenges it faces.