CIBC World downgraded Schering-Plough (SGP ) to sector underperform from sector perform.
Analyst Mara Goldstein says she's downgrading to due to the dividend cut and a cloudy future for the drugmaker. She notes Schering plans to cut its 17 cents quarterly dividend to 5 cents, and says its second-half earnings could be below the first half, and that its 2004 earnings could drop below 2003's earnings. Schering also will slash more than 1,000 jobs.
Goldstein says the dividend cut is a surprise, as she had believed Schering would use its borrowing capacity to finance the dividend. She notes Schering's earnings shortfall is less of a surprise as her estimates -- now under review -- had been flat sequentially.
Also, Goldstein says besides financial uncertainty, she thinks management's credibility has been severely bruised, and says the stock's valuation is "a question mark".