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Nomura Analyst 'Enthusiastic' About Entertainment Stocks

A stock specialist on the floor of the New York Stock Exchange
Stan Honda/AFP/Getty Images

Initiating coverage of sector companies at his new firm, former Barclays analyst Anthony DiClemente says he likes that "the proliferation of screens now enables consumers to access media content in countless ways."

Veteran entertainment industry analyst Anthony DiClemente has launched coverage of Hollywood stocks for Nomura, saying he was "enthusiastic about the industry's prospects."

The former Barclays Capital analyst said in his initiation report for his new firm: "The proliferation of screens now enables consumers to access media content in countless ways. While some may fear disruption of traditional media models, such as linear TV watching, one constant remains: there are high barriers to entry surrounding TV and film content production."

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Concluded DiClemente: "We are confident that pricing power and new digital revenue will offset pressure on legacy media revenue streams. Media stocks are additionally supported by robust capital returns, a steady economy and undemanding valuation relative to growth."

His comments come as Hollywood stocks have had a rough start to 2014, with many posting declines after setting all-time highs late in 2013. Analysts have cited cable TV ratings and advertising trends, which has led to some reductions in company growth forecasts, as well as rising programming costs as near-term concerns.
 
Amid the continuing debate over whether consumers are cutting the pay TV cord, DiClemente said: "Media's revenue mix will shift, not erode. The shift to Internet TV and on-demand viewing does not imply that a material number of cable subscribers will "cut the cord" in the near term; this fear may be overdone. On the contrary, we believe that the revenue mix will shift to digital content rentals, sales and subscriptions (VOD, iTunes, Netflix)."

DiClemente predicted 5 to 6 percent advertising growth for the industry over the next three years, which would be "a modest slowdown, 7 percent-8 percent affiliate fee growth and annual digital media revenue increases of 20 percent, including VOD, subscription VOD and electronic sell-through.
 
As his top picks, DiClemente recommended Walt Disney, CBS Corp., 21st Century Fox and Discovery Communications.

Said the analyst: "As models evolve to digital, we favor media companies whose content offerings possess fast monthly subscription rate growth (CBS, Fox), robust new digital revenue streams (CBS, Disney), best-in-class international growth (Fox, Discovery) and attractive valuation relative to growth (Fox, CBS)."

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai