Another Analyst Downgrades U.S. Advertising Forecast Amid Soft Economic Trends

NEW YORK - Davenport & Co. analyst Michael Morris on Friday became the latest Wall Street observer to cut his U.S. advertising outlook amid a weak economy and discuss the  potential impact of the softer trends on big industry stocks.

He lowered his ad growth estimate for 2012 and 2013 by one percentage point each to 3 percent and 2 percent, respectively, while he maintained his current year estimate for 5 percent growth.

"We believe that the macro-economic writing is on the wall and that advertising growth will, over time, converge to the pace of overall market growth," he wrote.

His entertainment stock top picks are AMC Networks due to company specific momentum and CBS Corp. when looking at recent values, he said.

"Our top picks are AMC Networks, which we view as having the most company unique catalysts, and CBS, which, while highly ad exposed, we believe is adequately priced for a significant advertising slowdown and represents attractive risk reward even in a weak environment," Morris wrote in a report.

He said he was "most cautious" on Walt Disney though. "We believe that investor expectations remain most optimistic for Disney, particularly given what we consider to be under-appreciated risk at ESPN," he wrote, citing, for example, the risk that the sports network's industry-leading carriage fees could lead some pay TV companies to drop it.

Amid economic concerns, Nomura analyst Michael Nathanson recently also cut his ad outlook.

Meanwhile, Cowen analyst Doug Creutz on Friday said in a separate note that he is modeling for 2.5 percent U.S. ad growth next year, including benefits from political and the Olympics. And he also picked possible outperformers.

"Large-cap media shares have declined in recent months due to increasing concerns about the trajectory of the economy," he said. "In the event that the economy does slip into recession in 2012, we believe that "outperform"-rated Discovery Communications and Time Warner, as well as "neutral"-rated Viacom are likely to be relative outperformers in the large-cap media group due to their lower earnings per share leverage to the economy."

Highlighting that recessions typically lead to "significant" market value compression among big media and entertainment stocks, he predicted that in the case of a recession in 2012, big sector stocks would have 15 percent-25 percent further downside.

Email: Georg.Szalai@thr.com

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