Theater Stocks Lead Forgettable First Quarter for Entertainment
Lionsgate is the biggest loser, its stock tumbling 33 percent in the quarter.
With a stronger-than-expected box office to start the year, theater stocks outperformed most other entertainment sectors in the first quarter of 2016, which ended Thursday.
Of the 50 stocks followed by The Hollywood Reporter, Carmike Cinemas fared best, its shares rising 31 percent. Much of that is attributed to a merger agreement with AMC Entertainment, but AMC was also up 18 percent on the quarter and competitor Cinemark was up 8 percent.
Movie-exhibition stocks have performed so well that a day before the quarter ended B Riley analyst Eric Wold downgraded the sector under the assumption they've come far in a short period of time.
Beyond exhibitors, some surprises are how well old-fashioned television and radio stocks have rebounded in the face of cord-cutting concerns for the former and anemic growth amid digital competition for the latter.
Salem Media Group, a leader in conservative and Christian talk radio, saw its shares rise 17 percent on strong political advertising. Scripps Networks Interactive, parent of HGTV, Food Network and other cable channels, experienced a 19 percent gain in the quarter, and CBS shares rose 17 percent.
CBS benefited from an investor day in March that included bullish comments on over-the-top video offers, retransmission consent fees and other newer revenue streams. "CBS held what we would consider to be a pretty smart Investor Day," wrote Wells Fargo analyst Marci Ryvicker in a report reviewing the event. "While we aren’t raising estimates, we do know that the bias for Street numbers is higher, and our sense from today’s conversations is that the information provided was “good enough” to keep the momentum going."
Several analysts raised their price targets after the event. Stifel, Nicolaus analyst Benjamin Mogil boosted his by $6 to $60 and maintained his "buy" rating. "Following CBS' investor day, we come away incrementally more positive on the name," he said. "We view the increased focus on [content] ownership and increasing distribution opportunities, tied to the content ownership, as justifying greater post-2016 growth."
Some new-media stocks performed well, but mostly because they are takeover targets. TiVo, for example, was up 10 percent while Yahoo shares rose 11 percent.
Winners in entertainment numbered 25 while losers were also 25 among the 50 stocks THR tracks.
Lionsgate is the biggest loser, its stock tumbling 33 percent in the quarter as The Divergent Series: Allegiant disappointed at the box office, as did Gods of Egypt, The Last Witch Hunter and Mortdecai.
"While we are generally reticent to change ratings around a single movie’s performance, the bull case on this name has been that there would be no earnings cliff post-Hunger Games," Mogil wrote in a report. "With Allegiant now faltering, the impact going forward is material and more importantly brings into question how deep the young adult market is, a market which has brought in numerous entrants amid a moviegoing environment which is increasingly very concentrated among fewer films."
Other losers in the quarter include Twitter, Pandora, Starz, Dish, Imax, AMC Networks and Netflix, which was a big gainer a year ago.
"Is Netflix Killing TV?" MoffettNathanson analyst Michael Nathanson asked in a March report.
"Based on our analysis of Nielsen data, Netflix’s domestic streamed hours would equate to about 6 percent of traditional TV hours versus over 4 percent in 2014," he found. "At present, Netflix would be larger than the smallest cable network companies, but smaller than the seven largest cable and broadcast conglomerates."
Nathanson's conclusion: "Currently, Netflix is a source of industry pain, but not necessarily a cause of industry death."
As for Hollywood conglomerates, after CBS, Time Warner was the biggest gainer, its stock up 13 percent after three months.
Time Warner's stock early this year partly benefited from chatter about a possible sale or spinoff of parts of the company. "I do not expect the company to get acquired in the near-term, but there is unquestionably a halo from M&A expectations," Wunderlich Securities analyst Matthew Harrigan tells THR.
He adds: "I feel that the main point is that Batman v. Superman affords credibility to a major inflection point for film performance." Plus, he says "HBO monetization of non-paying customers is also a positive" thanks to HBO Now.
Meanwhile, Walt Disney shares were down 6 percent after the opening quarter of the year as concerns about TV, even ESPN, overshadowed the stellar results for Star Wars: The Force Awakens. Disney’s stock, strong over the past several years, had the worst quarter of any of the seven major conglomerates.
Comcast was up 9 percent in the quarter, Sony was up 5 percent, 21st Century Fox gained 3 percent and Viacom was up 1 percent.
The broad-based S&P 500 stock index in comparison recorded a 1 percent gain for the first quarter of 2016.