Analyst: Big Entertainment Stocks May Tread Water After Run-Up

Nomura's Michael Nathanson also says "investors fret about both the impact of the Japan earthquake and high commodity prices on advertising spend," but continues to recommend buying key conglomerate stocks.


NEW YORK - After a continued run-up, big entertainment stocks may end up treading water a bit, Nomura Securities analyst Michael Nathanson predicted Monday.

When he launched coverage of U.S. media giants in the fall, he was bullish on the sector for several reasons, including advertising growth, continued affiliate fee growth and attractive market valuations.

"Since then, the market appears to have acknowledged these points as the media sector has had a strong run," Nathanson said in a report Monday. "The valuation argument is now a bit trickier."

With conglomerate stock prices up "to levels where the relative valuation opportunity is just less obvious," Nathanson said "the sector is likely to tread water as investors fret about both the impact of the Japan earthquake and high commodity prices on advertising spend."

But he also suggested that investors "use this potential pause in momentum to add" to select stocks. Nathanson highlighted that he continues to have "buy" ratings on shares of CBS Corp., Walt Disney, News Corp. and Viacom, and all of them, with the exception of CBS, still have more than 15 percent upside to his target prices.

Earnings revisions are the likeliest driver of big sector stocks going forward, according to the analyst.

Nathanson's report comes ahead of first-quarter earnings season for big entertainment players. It follows a recent note from Barclays Capital analyst Anthony DiClemente that also highlighted the run-up in large entertainment stocks and wondered about current ad trends. "Some recent data points may suggest that the ad market could in reality be less robust than year-to-date media performance implies," DiClemente wrote.

Twitter: @georgszalai