Sotheby's... When the Rich Appear to Stumble (BID)

Sotheby’s (NYSE: BID) is supposed to cater to the economically privileged wealthy class in the world in its auction houses and consignment offerings.  Apparently its wealthy client base does not translate to endless earnings growth and success for the company itself.  Sotheby’s doesn’t just cater to the one-percenters.  It caters to the top 0.1% of the wealthy in the world, with many individuals reaching up from time to time to be customers.

Shares are down sharply after its fourth-quarter earnings were down 26% due to lower sales and more narrow margins. Before you hit the panic button, keep in mind that 2011 sales were up 7% and private offerings reached a new record.  There are also several highly publicized sales of art and antiquities coming in the next few months (The Scream is one).  A drop in the art market over the last two quarters seems mostly to blame even if bidding prices from the newly wealthy have continued to rise.

The WSJ pointed out that Sotheby’s auctioned off $4.9 billion of art last year, up about 15% from a year earlier, as sales at rival Christie’s rose about 14% to $5.7 billion.

What we find interesting about this is that Sotheby’s was already down about 20% from last year’s high of $55.67 before the earnings report.  Now shares are down another 8.7% to $35.95.

If the auction house can get anywhere close to its Thomson Reuters figure of $2.777 EPS in 2012, then this stock now trades at only 13-times earnings.

After raising its dividend in late 2011 it now has a dividend yield of only about 0.9%.  Perhaps a higher dividend would make this one more attractive as a projected $2.77 EPS leaves much room for its $0.32 annualized payout to be raised.