While it was a brutal first half of the year for most media stocks, Wall Street observers are bullish on a few Hollywood firms for the second half of 2020. Despite concerns about the impact of the novel coronavirus on advertising, production, moviegoing and theme park operation, analysts are seeing a near-term upside for a few entertainment giants whose stocks have taken a beating:
Fox Corp. MoffettNathanson analyst Michael Nathanson doesn’t have many entertainment stocks to recommend these days. “The only media ‘buy’ here is Fox based on the presumption that the NFL will come back in the fall and that Fox News is a share gainer,” he tells The Hollywood Reporter about his pick that is focused on positive momentum. “They have pricing power in affiliate fees and ad sales due to their focus on live audiences.” He recently also “moderately” raised his earnings forecasts for Fox amid commentary from industry executives that U.S. ad trends were “not as bad as feared.” Is Fox his only “buy” among Hollywood stocks because of the coronavirus pandemic or because of the underlying longer-term challenges for the sector? “For both reasons,” Nathanson explains.
Comcast The fact that the vertically integrated Comcast has skin in both the distribution business via its cable systems and content via its NBCUniversal unit brings the benefit of diversifying risk in challenging times, suggests CFRA Research analyst Tuna Amobi, who has a “strong buy” rating on the stock. “Comcast’s residential high-speed broadband offering — in conjunction with its nascent Flex streaming device — should experience some incremental tailwinds in the near term due to COVID-19, while the overall negative impact of the pandemic should be somewhat mitigated by the relative diversification of the company’s portfolio,” he says.
Wells Fargo’s Jennifer Fritzsche in a June 23 report also expressed confidence in Comcast, which she rates at “overweight,” despite a recent acceleration of pay TV subscriber losses. After all, broadband and other businesses have risen in importance in the age of cord-cutting. “We believe Comcast’s cable segment is continuing to benefit from the lifestyle changes brought about by COVID-19 (i.e., work from home, bandwidth demand increases, home entertainment),” she argued. “Given the cable business represents 70 percent-plus of consolidated earnings (before interest, taxes, depreciation and amortization), performance here is the needle mover.” On the NBCUniversal side of the company, particularly film and theme parks, “the negative near-term impact will be better than feared,” Fritzsche added. “Media being ‘less bad’ could be a positive catalyst for the shares as we believe the fear (investors had for these businesses) was high.”
Disney Given its big theme parks, consumer products and sports TV businesses, the pandemic and its economic fallout are widely seen as hurting Disney more than its peers. But some analysts are still betting on the company given the quality of its brands and management team and its aggressive push into the streaming space. Cowen analyst Doug Creutz has maintained his only “outperform” rating for a big sector stock on Disney, highlighting his “faith in the long-term value of [its] intellectual property.”
BMO Capital Markets analyst Daniel Salmon, who covers entertainment and internet stocks, tells THR he also continues to tout Disney as his favorite stock, emphasizing: “Disney is actually our top pick across [our] entire coverage,” including internet stocks. Earlier in the year, Salmon predicted that, amid the pandemic, the company’s stock valuation would “remain supportive as long-term investors focus on the accelerated shift to streaming, the heart of the bull case” and said the company would join Netflix and Amazon “among the leaders in global streaming.”
Lionsgate While one could argue that smaller- and medium-sized companies have less market clout and financial wherewithal in a crisis, Lionsgate recently got a callout from Creutz as his “best idea” in that part of the entertainment sector due in part to the fact that only 9 percent of its overall revenue is exposed to businesses impacted by the pandemic. “We view the recent share weakness as an opportunity to own Lionsgate stock at an attractive valuation given likely revenue and free cash flow acceleration into 2021,” he wrote in a June 18 report about the stock, which he rates at “outperform.” Highlighted Creutz: “Current valuation appears to exclude both any recognition that Lionsgate is less exposed to pandemic headwinds than advertising-exposed peers and the international Starz opportunity.”
A version of this story first appeared in the July 8 issue of The Hollywood Reporter magazine. Click here to subscribe.