October 23, 2009 / 2:16 PM / in 9 years

UPDATE 1-RESEARCH ALERT-Goldman cuts Barnes & Noble to sell

Oct 23 (Reuters) - Goldman Sachs downgraded Barnes & Noble Inc (BKS.N) to “sell” from “neutral” and said the bookseller’s move into electronic books market may weigh on its earnings.

Barnes & Noble, whose shares were down 6 percent at $17.65 in early trade on the New York Stock Exchange, on Tuesday unveiled its electronic reader to rival Amazon.com Inc’s (AMZN.O) dominant Kindle, priced identically at $259 ahead of the holiday shopping season. [ID:nN20319058]

“The migration of books to digital formats clearly challenges BKS’s store-based model,” Goldman said.

“We expect long-run pressure on earnings as margins, already thin, come under pressure from deleverage of rent, investment in the digital distribution business, and market share loss,” Goldman said and cut its price target on the stock to $18 from $21.

Credit Suisse, which rates the company “underperform,” also lowered its price target on the stock to $16 from $18.

Dubbed the Nook, Barnes & Noble’s electronic reader features a colour screen and dual display, and unlike Kindle allows its users to share most books.

“While we applaud management for these efforts and think it has the potential to be a major player in this business, the concern is whether being a player will ultimately sacrifice profitability,” Credit Suisse said.

“The risk, in our view, is that as the math currently works, each sale through a Nook is not just unprofitable but potentially replaces a higher margin sale at stores.” (Reporting by Matthias Williams in Bangalore; Editing by Himani Sarkar)

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