Analyst Picks Viacom, News Corp. As Favorite Entertainment Stocks in Difficult Market
Evercore Partners' Alan Gould is the latest Wall Street observer to comment on the sector outlook after a tough third quarter for Hollywood conglomerates.
NEW YORK - Amid continued economic concerns and a big third-quarter decline in big entertainment stocks, Evercore Partners analyst Alan Gould in a report on Thursday picked Viacom and News Corp. as his favorite industry conglomerate stocks in the current environment.
He is the latest Wall Street observer to chime in on big sector stocks and their outlook this week after the start of the fourth quarter.
At the beginning of the week, a couple of analysts predicted an extended period of weakness for entertainment conglomerate stocks. “Downward pressure on media stocks’ valuation multiples will likely persist through the second quarter of 2012,” said Vasily Karasyov, analyst at Susquehanna Financial.
On Wednesday, Nomura analyst Michael Nathanson issued a report though arguing that people with a one-year investment time frame should buy big entertainment stocks. Nathanson rates CBS Corp., Walt Disney, News Corp. and Viacom at "buy," while he has a "neutral" rating on Time Warner, Scripps and Discovery Communications.
Gould shared his favorite stock picks on Thursday. "Based on economic sensitivity, valuation and growth rates, our favorite entertainment names, in order, are Viacom, News Corp., Time Warner and Walt Disney," he wrote. He has "overweight" ratings, similar to other analysts' "buy" ratings, on them. He has "equal-weight," or "neutral," ratings on CBS Corp. and Discovery Communications.
Should the U.S. fall back into a recession, Gould said Viacom, News Corp. and Disney would show the most upside to his target prices.
He estimated that a modest recession would reduce his 2012 earnings per share estimates for CBS Corp. by 21 percent, 10-12 percent for Disney and News Corp., 6 percent for Viacom, Discovery and TW, and 4 percent for Comcast.
But echoing other analysts, Gould argued that advertising remains solid. "The national TV ad market remains strong, and we anticipate the companies will discuss a continued strong scatter market during the third-quarter earnings calls in early November," he said.