Some downgrades are as late as they are obvious.

Merrill Lynch analyst Alan Rifkin downgraded shares of Barnes & Noble (NYSE: BKS) this morning -- from "neutral" to "underperform" -- cutting his price target on the languishing stock from $15 to $13.

Really? Now? Way to lock the barn -- or Barnes, if you will -- after the horse has fled.

To be fair, it's not as if Rifkin was bullish. A "neutral" rating is the "maybe we can still be friends" jargon equivalent in a breakup. It's a conscientious kiss-off, but a kiss-off nonetheless. His older $15 price target is also lower than yesterday's close.

However, how can any analyst not be flat-out bearish on B&N these days?

Let's break this down, using some of Rifkin's own valuation arguments because I think he isn't being bearish enough even now.

Rifkin sees the superstore posting a small deficit of $0.10 a share this fiscal year. He had earlier targeted a profit of $0.05 a share for the fiscal year that ends in April. Rifkin expects a breakeven result next year, followed by a profit of $0.20 a share in fiscal 2013.

I see three critical shortcomings in these targets.

  • How can B&N lose only $0.10 a share in fiscal 2011? It kicked off the year with a massive loss, largely the result of pushing the Nook at all costs. This is a seasonal business, and the holidays are usually strong, but it's not going to be enough. I guarantee that you will buy fewer physical books as gifts this season. If someone owns an (Nasdaq: AMZN) Kindle or perhaps an Apple (Nasdaq: AAPL) iPad, you're not going to chance it with a hardcover. That would be insulting. You'll either buy an Amazon or Apple gift certificate, or just go in an entirely different direction. Yes, e-readers will sell -- but not at Barnes & Noble. Why? Who would go to a Nook-biased retailer? Best Buy (NYSE: BBY) is expanding its e-reader display, now offering all of the leading gadgets. The extra space is coming at the expense of reducing its space for media, as CDs, DVDs, and books aren't selling the way they used to in this digital age.
  • On that point, if the popularity of real books will continue to wane, how can Rifkin suggest that earnings will improve next year, and then again the year after that? Booksellers are the new record stores. How can B&N earn more by selling less? Killing the Nook -- as it inevitably will -- may help corporate overhead, but I can't see the chain posting another profit on an annual basis.
  • I don't mean to be cruel, but can I get a show of hands from those who even think that B&N will be around in fiscal 2013? Forget the proxy battle. If B&N is able to smoke out a buyer now -- and passes -- it's very likely that the iffy retailer will be worth less and less, every passing year.

There are too many smart companies -- Apple, Amazon, and Google (Nasdaq: GOOG) -- making a push to grow the digital book market that will make leaf turning a thing of the past for the customers that can afford to go through the most books. How does B&N, Borders (NYSE: BGP), or Books-A-Million (Nasdaq: BAMM) get out of this alive?

Spoiler alert: They don't.

Disagree with Rick? Do you think Barnes & Noble will bounce back? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz has been a Kindle owner since 2008 and an iPad owner since April. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.