“The Cost of COVID-19 So Far? $30 billion of Earnings Before Interest, Taxes, Depreciation and Amortization in 2020.” That is the title of a Tuesday report from Credit Suisse analyst Douglas Mitchelson.
“Cumulatively, since the start of the COVID crisis, we have taken $19 billion, or 35 percent, out of our media earnings before interest, taxes, depreciation and amortization [estimate for the year]” to $35.8 billion, he explained. That includes such companies as Walt Disney, whose theme parks have been hit hard by the pandemic, Fox Corp. and ViacomCBS. “While we have media EBITDA rebounding 26 percent in 2021, even after this performance it would still be 18 percent below 2019 levels,” the analyst said.
Meanwhile, his earnings estimates for telecom companies, which include the likes of Comcast, AT&T, Dish and Charter, have dropped by $11 billion to $157.5 billion, which would be down 5 percent from 2019. But he noted: “Telecom is holding up relatively quite well: we forecast EBITDA growing 5 percent in 2021, rebounding to 99 percent of 2019’s levels.”
With earnings season for the stocks he tracks complete, Mitchelson shared this summary: “The star takeaway from first-quarter results was confirmation of the many early data points suggesting that COVID and social distancing were accelerating the shift to streaming. This includes record streaming subscriber growth and usage and record U.S. cord cutting (which was a clear positive for Netflix, and a clear negative for linear media).”
And he highlighted one clear open issue, writing: “The key advertising debate remains whether TV advertising will rebound post-crisis, or whether TV is the next print advertising, losing share to digital this recession just as newspaper did during the Great Recession.”
So what stocks does Mitchelson recommend? “We remain in the broadband ‘stronger-for-longer’ cable bull camp with ‘outperforms’ on Charter (our top pick), Altice U.S. and Comcast,” he wrote. “Verizon and AT&T remain ‘neutral’ given the potential for increased competition in an already mature industry, in addition to AT&T’s exposure to satellite TV and media. For media, we believe Fox’s and Discovery’s high margins, lack of studio exposure, free cash flow generation and valuations present interesting relative value opportunities.”
Meanwhile, ‘neutral’-rated “Disney remains the most heavily debated company in our coverage, and we sympathize with the long-term bull case that its theme parks will eventually recover post-COVID and its pivot to streaming (Disney+) will outstrip challenges to its linear networks, but also the bear case that the next 12-18 months could prove quite challenging and consensus expectations remain too high,” Mitchelson said.