"Multiple Positive Milestones" to Boost Media Stocks, Analyst Says

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Guggenheim Securities' Michael Morris mentions the return of live sports, "improving advertiser sentiment, reopening of small- and medium-sized businesses that subscribe to channel bundles" and other catalysts.

Guggenheim Securities analyst Michael Morris said on Monday that media and entertainment stocks are in for gains in the coming weeks, citing "multiple positive milestones."

On May 20, Morris had expressed "concern that a stubborn investor focus on secular media headwinds (cord cutting, declining live ratings) under-appreciated the potential for cyclical-trend driven share appreciation in the near term." In his Monday report, he acknowledged that the media stocks he covers have since then outperformed the broader market.

Morris highlighted though that media stock declines from their Feb. 19 highs "remain much steeper than the overall market decline." He concluded: "We see potential for additional outperformance in the coming weeks as consumer activity and airing of live sporting events ramp. We expect improving advertiser sentiment, re-opening of small- and medium-sized businesses that subscribe to channel bundles and gradual improvement in content production and theme-park attendance to support positive sentiment."

Morris emphasized that the return of live sports to TV "appears to be well on track," mentioning the NBA's plan to resume games on July 31 and the NHL's expectation that team will return to training camps in July. Addressing the NFL season, he wrote: "As yet, no delays have been announced. Adjustments to typical plans have included training camps to be held at team facilities (as opposed to third-party locations as has been standard), elimination of joint practices and international games, and release of a schedule designed to provide flexibility for timing or elimination of early-season games."

Morris also said that the reopening of venues, as well as film and TV production has a "direct and indirect positive benefit." While the reopening in California is "more complicated" due to phasing making timing "somewhat unclear," "the good news for media is that film and television studios, in addition to bars and restaurants, will be allowed to reopen on June 12," the analyst wrote. "A return to content production should support underlying confidence in media economics, while reopening of dining venues, when combined with a return of sports, could allay concerns of accelerated levels of cord-cutting." 

In his Monday report, Morris that he prefers the stocks of Fox Corp. and ViacomCBS, which he rates at "buy," over their peers. In April, he had upgraded his rating on Fox shares, saying: "Fox is best positioned among peers in a weaker, but ultimately stable consumer environment."