Hollywood Conglomerate Stocks Rise in First Quarter

5:22 PM PST 03/30/2012 by Georg Szalai
Stan Honda/AFP/Getty Images

NBCUniversal owner Comcast and CBS Corp. were two of the strongest industry performers in the opening period of 2012.

NEW YORK - The stocks of several entertainment conglomerates hit 52-week highs late in the first quarter, but some on Wall Street see further upside.

As trading for the first quarter of 2012 came to an end on Friday, shares of all major Hollywood biggies were up from where they had ended 2011. But some of them underperformed a 12 percent gain in the broad-based S&P 500 stock index as the Dow Jones industrials recorded their best first quarter since 1998.

CBS Corp. and Sony Corp. hit new 52-week highs of $33.94 and $32.30, respectively, on Friday, the final trading day of the first quarter.
 
Leading the pack among entertainment biggies in the opening quarter of 2012 were CBS, which benefited from continued advertising strength and analyst support, and NBCUniversal controlling shareholder Comcast, whose cable unit has seen better subscriber momentum. CBS shares ended the quarter 24.9 percent higher at $33.91. Comcast closed at $30.01, up 26.6 percent over the end of 2011, after hitting a new high earlier in the week.

The Walt Disney Co. closed the quarter at $43.78, up 16.7 percent. American depositary shares of Sony Corp. finished the quarter up 15.1 percent at $20.77. Also hitting double-digit growth, News Corp.'s Class A stock rose 10.5 percent to $19.71 after earlier in the week hitting a 52-week high.

Underperforming the stronger gains of their peers, Viacom finished the quarter up 4.5 percent at $47.46 despite some continued ratings challenges, and Time Warner recorded the same percentage gain to $37.75.

Is there more upside ahead for entertainment conglomerate stocks? "Yes," said Evercore Partners analyst Alan Gould. Some of the five large-cap entertainment stocks "have underperformed the market," he explained.

Lazard Capital Markets analyst Barton Crockett on Friday also said in a report that there is :a core, under-appreciated metric" that entertainment biggies can boast about - “cash capacity, or
excess cash, borrowing capacity and free cash flow that could be put to productive use over the next three years."

Said the analyst: "We see average capacity at 34 percent of market cap, topped by "buy"-rated News Corp. at 46 percent…Were the group to use all available cash capacity to buy back stock, the average cumulative earnings per share accretion over three years we estimate would be 15 percent, with News Corp. topping the list at 56 percent."

But he said that Viacom and Time Warner buyback and dividend assumptions "are already near capacity." He upgraded his ratings on Disney and Discovery Communications to "buy." In a broader entertainment industry observation, he said: "We have a favorable stance towards our entertainment coverage group, where we see secular strength."

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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