It's been a major media Monday—Wall Street analysts have been upgrading media conglomerates left and right. The stocks have been benefiting, gaining more today than the major indices.
While the Dow finished Monday up about one percent, CBS is up more than 4 percent for the day, Time Warner is up about 3.5 percent, and Disney and Viacom are both up more than 1.5 percent. After the media sector has suffered from concerns about a weak ad market, viewers shift to the web, and the question of how to monetize digital distribution, now the business is looking up.
At Morgan Stanley, analyst Ben Swinburne reiterated his "attractive industry view" of the media sector, raising his projections for ad growth in 2010 from 2 percent to between 4 percent and five percent. While the pullback in auto ads has been a real drag on the sector, Swinburne says a resurgence in auto advertising and a strong political spending year will bolster results.
Swinburne also expects the consolidation trend in the media sector, plus more share repurchases to benefit valuations. His top picks are, in this order, Disney, CBS, and Time Warner.
Over at UBS, Michael Morris also predicts improving ad trends, and expects upcoming earnings to show proof of that progress. He says the announcements by smaller, pure-play media companies in the next few weeks -- including Media General on Wednesday and The New York Times on Thursday -- should give a good sense of the positive news to come from large cap media stocks as they begin reporting on November 3rd.
All in, Morris expects a negative 9 percent growth rate for the media universe in the third quarter, an improvement from the negative 12 percent growth rate in the second quarter.
RBC Capital Markets David Bank upgraded Viacom to "Outperform," anticipating margin expansion in 2010. Bank is looking for video game Rock Band to be profitable and for some exchange rate benefits to materialize. He also points out that though Viacom is largely a cable stock -- just a small portion of its earnings are from its movie studio-- it trades at a discount to pure-play companies Discovery and Scripps.
Bank also updated his outlook on Discovery, increasing his price target for the stock. For Disney Bank has increased his Fiscal 2010 "core estimates" for the studio and consumer products division, but his EPS estimates are now two cents lower, accounting for the incorporation of the Marvel acquisition.
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