Analyst: Entertainment Stocks Likely to Outperform Market Again in 2013

Lazard Capital Markets analyst Barton Crockett on Wednesday said that after a strong performance last year, entertainment stocks are likely to outperform the stock market again in 2013.

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In a report entitled "Deja vu outlook; the group should outperform again," he called exhibitor Cinemark, Viacom, satellite radio giant Sirius XM Radio and Discovery Communications his favorite stocks in the sector at the start of the new year.

The S&P 500 rose 13.4 percent in 2012, with six of the seven Hollywood conglomerates significantly outperforming the broad-based stock index, with Sony Corp. being the only laggard.

"We believe entertainment can outperform again in 2013, like it did in 2012," Crockett wrote. "2012 was an exceptional year for our coverage group."

He highlighted that entertainment conglomerate stocks "rose an average of 35.8 percent in 2012 versus a 13.4 percent rise for the [broad-based] S&P 500 [stock index] as investors, we believe, became attracted to the bull thesis - secular growth in program fees, resilience for TV advertising and stepped up cash returns to shareholders."

He predicted "more of the same" for 2013, arguing that stock valuations in the entertainment sector are "not demanding," particularly for his top picks.

"We see likely first-quarter box office weakness presenting a potential attractive entry point for Cinemark, where cash returns are likely stepped up meaningfully over the next two years," Crockett said about the exhibitor.

Meanwhile, Viacom "should benefit from a sentiment swing tied to stabilizing ratings and advertising against easy comparisons" and a below-peer valuation, he said. 

Discovery could benefit from likely increases in 2013 earnings estimates on Wall Street, while Sirius XM's could get a boost from stock buybacks and rebounding car sales, Crockett said.

Lionsgate, AMC Networks, Time Warner and CBS Corp. are among the other stock picks for 2013 that entertainment industry analysts have highlighted.

Meanwhile, B. Riley Caris analyst David Miller on Wednesday maintained his "buy" rating and raised his price target on the stock of Lionsgate from $18 to $21, providing 28 percent upside from its current price. "With Lionsgate up a notable 37.3 percent [since we turned positive on this name back on April 23] at $11.94 per share, and with now a mere 9.7 percent upside to our target of $18, we obviously have the choice between downgrading the stock to "neutral" or raising our target," he said in a report. "We are choosing the latter after spending a great deal of time re-assessing the trajectory" of its financial outlook over the next three fiscal years.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai