Analyst’s Negative Remarks Clip Time Warner Shares

Time Warner Inc. shares fell 6.8% on Monday after a Merrill Lynch & Co. analyst said it may be difficult for the world’s largest media company to match year-ago cash-flow growth in the next few quarters.

Sluggish U.S. sales at Time Warner’s music unit, lower cash flow from its Columbia House music club and difficult comparisons in film and TV will curb growth, said Merrill analyst Jessica Reif Cohen, who cut her near-term rating on Time Warner shares to “accumulate” from “buy.” She maintains a long-term “buy” rating.

The stock tumbled $4.56 to $62.25 in heavy trading on the New York Stock Exchange. The price is down about 20% since mid-July.

Time Warner, in a statement, said it is on track to report a record year in 1999, with cash flow growing 13% to 15%. “While we are still in the budget process for 2000, we remain confident with respect to the solid short-term and long-term outlook for our company,” Chief Executive Gerald Levin said.

Another big brokerage, Morgan Stanley Dean Witter, reiterated its “strong buy” on Time Warner stock on Monday.

Cohen, who wasn’t immediately available for further comment, said in her report that it will be a challenge for Time Warner to surpass the 24% growth in cash flow that it posted in the first quarter of 1999 and the 14% growth of the second quarter. She predicted 13% cash-flow growth this year and 14% next year.

Time Warner defines cash flow as earnings before interest, taxes and amortization. Cash flow is used by analysts and investors to measure the basic health of a company’s underlying businesses.

Cohen, considered one of the more influential media analysts on Wall Street, has sent Time Warner’s shares falling before. In August, the stock slumped 7.3% after she cut her earnings estimates on concern about a decline in the company’s music business.

There are no obvious products, events or initiatives coming up in the next few quarters that are likely to generate stronger growth, Cohen said in her report.

Still, she expects the stock to rise as high as $80 in the next 12 to 18 months.