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Analyst: Sovereign AOL Looking Shaky

Ahead of AOL's expected spin off from Time Warner next week, some Wall Street banks have started coverage of the stock, which, at first glance, appears less than kind. RBC analyst Ross Sandler, for one, started AOL off on Tuesday with a "sector perform" rating, "above average" risk, and a $27 price target. Like most analysts, he focuses on AOL's obvious challenges: A declining dial-up business that makes up most of the company's profits; its reliance on that shrinking subscriber base to bring viewers to its media business; its poor performance in growth areas like in social media; its declining search and display ad businesses; and its dependence on Google's search revenue -- a deal that expires (at least at its current rates) in a year.
As big, institutional Time Warner shareholders pull out, AOL stock could drop into the low $20s, which would actually create a "more compelling" valuation, according to Sandler.



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