Analyst Downgrades Fox, Time Warner Stocks Amid Industry Deal Focus

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Cowen & Co.'s Doug Creutz says Rupert Murdoch is "fully back in deal mode," which has in the past "meant poor results for shareholders," and also turns more negative on the broader entertainment sector.

Cowen & Co. analyst Doug Creutz on Wednesday downgraded his rating on the stock of 21st Century Fox, citing its hunt for Time Warner and a more negative stance on the broader entertainment industry.
Fox chairman and CEO "Rupert Murdoch appears to be fully back in deal mode," Creutz said in a report. "Historically, this has meant poor results for shareholders."
He said he "double-downgraded" Fox's stock from "outperform," equivalent to other analysts' "buy" rating, to "underperform," similar to a "sell." He also cut his price target on the stock from $38 to $29.
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"This is in part due to what we see as some deterioration in overall media fundamentals," Creutz wrote. "However, the overriding reason" is the deal focus revealed by the rejected $80 billion Time Warner offer, he said.
Creutz also downgrades his rating on Time Warner shares, saying they are for now "in the hands of the arbitrators." The downgrade from "outperform" to "market perform" comes after the stock has run up more than 20 percent since news of Fox's bid.
"Short-term share performance will likely be dictated by how Fox proceeds," Creutz said. "We still like Time Warner's fundamental position, but see potential upside from any higher bid by Fox as offset by the possibility that Fox will not succeed/and or decide to walk away."
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The analyst also downgraded Viacom's stock from "outperform" to "market perform," explaining: "There are several small-picture issues contributing to our downgrade, but the big-picture reason is that we have shifted to a negative stance on the big media group, most significantly as a result of concerns that the Fox bid for Time Warner could touch off a wave of attempted acquisitions by the big media companies."
In a broader industry report, Creutz switched to a more negative view on the entertainment sector, saying that he was "pulling out the red card."
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"The primary driver is our concern that the Fox bid for Time Warner may lead to an unwind of capital allocation discipline across the group," he explained. "We are also incrementally more cautious on advertising and domestic box office trends. We see potential for multiple compression, and as of today have no "outperform" rated big media stocks." 
Twitter: @georgszalai