Art Market Monitor

Early this morning we received this very interesting reading on the art market and the prospects for Sotheby’s stock within it from a friend in finance who also has an interest in the art market. We also happened to stumble across an opposing view from a stock picking site, The Street.com. We thought they made interesting reading side by side. We should hasten to point out that the two opinions are not mutually exclusive as one deals with the revival of the art market and another with the comparison between Sotheby’s and peer companies outside the art world:

Wedbush analyst says, “In our view, rising global demand, better-than-expected recent auction results, and positive feedback from industry contacts point to meaningful recovery next year in the global art auction market. We believe that the art market, after suffering a year of difficult comparisons, is now poised at a critical inflection point to generate a solid rebound by spring 2010. Improved global equity, commodity, and other financial markets have driven up global wealth in recent months, and hence global demand for art. Meanwhile, better-than-anticipated recent auctions have prompted increased inquiries from prospective sellers, according to our contacts at major art dealers and auction houses. This thus points to increased supply coming back to market, given a firming of art prices, which had earlier been in free fall during fall 2008 and spring 2009.”

“Given our expectation for a global art market recovery in 2010, we are raising our 2010 revenue forecast to $560 million from $464 million. As Sotheby’s largely fixed cost business model generates significant  operating leverage (roughly 70-80% of incremental revenues drop to operating income), we are raising our 2010 EPS forecast to $1.00 from $0.28. We expect further improvement in years to come, and are initiating a 2011 EPS estimate of $1.50, which we note is still well below EPS of $3.14 that Sotheby’s generated in 2007, the peak of the last art market boom.”

The Street.com says, We rate Sotheby’s “hold.” Despite recently impressive auction results, Sotheby’s hasn’t demonstrated a sustained return to profitability. Its latest quarterly loss exceeded those posted during 2008. Furthermore, its shares aren’t particularly cheap. Sotheby’s is more expensive than its average specialized consumer-service peer based on projected earnings and sales per share. We give the company a growth score of just 0.4 out of 10.

Also of Interest:

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• The Joys of Artspeak
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• Is Sotheby’s Stock a Leading Indicator?
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