Merrill Lynch cut Overture Services (OVER ) to near term and long term buy from strong buy.
Analyst Justin Baldauf says the downgrade follows the unexpected loss of the company's AOL partnership. He views the new $0.53-$0.83 2003 earnings per share forecast as disappointing.
Baldauf says the 2003 forecast assumes a material decline in operating margin; likely due to the potential for an increase in traffic costs. In the mid-$20's, the stock trades at 30 times to 47 times the new 2003 EPS estimate range.
Although he believes Overture remains the leader in the fast-growing paid search market, even after losing AOL, Baldauf doesn't see any potential catalysts in the near term.