Analyst William Tanona also widened his third-quarter loss forecast for the world's largest brokerage, while adding the stock to his Americas conviction sell list.
Tanona said Merrill's stock currently trades at the highest price to book multiple in his large-cap brokerage universe, despite having some of the most significant exposures to troubled assets like collateralized debt obligations, mortgages and leveraged loans.
"We expect Merrill's multiple to compress over the coming weeks and months, as third-quarter earnings will mark the fifth consecutive quarterly loss for the company, and its prospects for fourth quarter of 2008 are not promising enough to warrant this level of a premium to book value," he wrote in a note dated September 4 to clients.
Tanona widened his third-quarter loss forecast for Merrill to $5.75 a share from $4.75, citing expectations of higher gross write-downs, and higher compensation expense. He also widened his 2008 loss estimate to $11.55 a share from $10.25.
The analyst cut his six-month price target on the stock to $22 from $28.50.
Shares of the company closed at $26.21 Thursday on the New York Stock Exchange.
(Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)
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