In a note issued to clients today, the firm said that its "prior bullish view of the new British cable company, which was a result of the merger of cable operators NTL, Telewest and Virgin's mobile phone division, was based on the value created by the merger."
Further, it warned: "Higher customer churn and weakening pricing power appear to be driving increased marketing and retention spend, offsetting the merger benefits we expected in 2007."
In a pointed comment about Virgin's current strategy, the bank advised: "We believe current management has yet to differentiate its product offerings enough to maintain share in this competitive market."
The bank's outlook on Virgin Media's stock has been cut from overweight to equal weight and revised its per-share price target from $32 to $27. The note added: "While leveraged buyout upside is certainly a possibility, we also see a bear case if near-term fundamental trends worsen, with a downside of $22."
The bank advised that a leveraged buyout was possible with a share price between $30 and $31. At the time this article was published Virgin Media's Nasdaq-quoted stock was trading at $25.45.