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Many Hollywood stocks are ending 2020 lower than 2019 despite a gain in the broad-based S&P 500 stock index. Movie theater stocks, whose financials and liquidity have been hit hard by the pandemic, are wrapping up the year with particularly big drops.
On the other hand, streaming stocks, from global giant Netflix to device maker Roku and music streamer Spotify, got further boosts amid stay-at-home orders around the world. And thanks to the early success of its Disney+ streaming service, which hit 86.8 million subscribers as of early December, the Walt Disney Co. was the biggest gainer and Wall Street darling among Hollywood powerhouses.
Some on Wall Street now also see potential upside for more entertainment stocks once consumers and businesses return following, or even amid, the pandemic. “After cratering with the onset of the pandemic, several entertainment stocks appear to have substantially recovered and recently benefited as potential plays on the reopening of the global economy — given the notable milestones on COVID-19 vaccine development,” CFRA Research analyst Tuna Amobi tells The Hollywood Reporter.
Amobi adds: “However, there are still fairly wide disparities in the year-to-date performance of entertainment stocks. While the stay-at-home exposure has provided a notable catalyst for many of the top performers, some of which have breached their all-time highs, the relative laggards have been dogged by protracted shutdowns of mass gatherings or events.”
Among big Hollywood players, the Walt Disney Co. weathered the coronavirus storm despite its theme parks business being hit hard, with observers crediting the success of Disney+ over its first 13 months. As of Thursday’s market close, before the final trading day of 2020, Disney shares were up 24.3 percent at $181.75. That meant Disney outperformed the 14.3 percent gain in the S&P 500 to $3732.04.
So did Netflix, which was up 61.3 percent for 2020 as of Thursday, finishing the trading day at $524.59, and Roku, whose stock jumped 143 percent for the year to $338.74, and Spotify, whose shares rose 108 percent to $319.35.
Lionsgate is closing out 2020 nearly unchanged, with Thursday’s closing price of $11.19, up 4.7 percent.
Meanwhile, other sector biggies will close the year down. Shares of ViacomCBS, which has sharpened its focus on streaming via its recent deals, are down 12 percent for the year, closing Thursday at $36.90, while Fox Corp. lost 21 percent to $28.70. And WarnerMedia owner AT&T dropped 27.4 percent to $28.49. Discovery shares fell 10.4 percent year-to-date to close at $29.81 on Dec. 30, while AMC Networks is down 12 percent to $35.47 during the same period.
Cinema stocks were big decliners though. Shares of AMC Theatres, which has said it may run out of cash in early 2021, are down 67 percent for the year at $2.15 as of Thursday, Cinemark’s stock is down 48.7 percent to $17.78, and London-listed shares of Regal owner Cineworld fell 70 percent at 89 pence ($1.20). Given, among other things, its big business in Asia, where cinemas have reopened more widely, giant-screen firm Imax Corp.’s stock fell only 14 percent for the year to end Thursday at $18.45.
With sector companies unveiling layoffs as part of restructurings and dealmaking in 2020 despite the pandemic amid the industry’s sharpened focus on streaming (ViacomCBS was particularly active by buying a stake in Miramax, selling CNET and agreeing to divest publisher Simon & Schuster), the entertainment industry will enter 2021 looking different from the start of the year.
But what does that and a potential wider reopening of the economy mean for Hollywood stocks?
“Looking ahead, we expect at least some potential reversal of the underlying performance signals in 2021,” says Amobi. “On the one hand, entertainment stocks with significant exposure to streaming — amid ratcheted content investments — could drive further relative outperformance. However, we look for investors to be increasingly focused on the reopening plays within the space.”
Amobi’s top picks for the sector include Comcast, which he rates a “strong buy,” Disney and Netflix (both a “buy”).
Disney also shows up on Bank of America’s list of top stocks for 2021, after also featuring on the 2020 edition. Analyst Jessica Reif Ehrlich in a recent report cited Disney’s “reopening exposure” via its theme parks and cruise ship business.”
Meanwhile, BMO Capital Markets analyst Daniel Salmon has Netflix as his top pick as the year closes, writing just before the holidays: “We continue to see both Disney and Netflix as winners in global streaming (and think Amazon and Apple are the other most relevant global players today; watching HBO Max closely), but Disney no longer offered enough upside to our target, while Netflix does.”
Arguing that Netflix’s stock has “downside protection around $450,” he argued that “the super bear case of endless free cash flow losses is long since over.” And Salmon wrote: “Thematic reasons to own Netflix include lack of antitrust and privacy spotlights. And finally, subscriber data points will continue to lead the short-term narrative, and we think investor sentiment is net negative owing to tough COVID comps and churn post U.S. price increase; we instead think that secular tailwinds can lead to better short-term subscriber performance than expected.”
And Morgan Stanley’s Benjamin Swinburne lists both Netflix and Disney on his list of top media picks for 2021. He rates both at “overweight.” In a report entitled, “Creative Destruction,” he called the streamer a “digital leader,” while citing the pandemic reopening as a driver for Disney.
“Perhaps the most positively affected by COVID tailwinds, Netflix has not seen any (stock price) multiple expansion despite long-term structural benefits from shifting streaming behavior, as investors have balked at getting in front of difficult first-half 2021 comparisons,” Swinburne explained. He raised his price target on Netflix’s stock to $650, citing “the potential for margin expansion” and his expectation that “substantial, recurring and growing free cash flow is around the corner.”
The analyst also raised his Disney price target to $200, predicting: “In fiscal year 2021, we think the reopening trends at the parks could be a larger driver of shares as the streaming debate plays out over a longer period of time.”
B. Riley FBR analyst Eric Wold on Tuesday also argued that movie theater stocks could do better ahead. Calling Imax Corp. his “favorite play in the media and entertainment space heading into the pandemic recovery,” he noted that its shares are up around 60 percent over the past two months, leading him to raise his stock price target from $18 to $26, while maintaining his “buy” rating. He argued that the stock was “poised to benefit from the return of moviegoers, an IMAX-friendly film slate and greater system pipeline monetization.”
In another report from Monday, Wold also argued that the “strong opening weekend for Wonder Woman 1984 tells us that movie watchers want to be moviegoers,” adding he was “optimistic for exhibition industry recovery into 2022.”
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