Analyst: Viacom, Time Warner Stocks Positioned for Upside Amid Fed Stimulus

Susquehanna's Vasily Karasyov says a new central bank initiative may benefit some big U.S. entertainment stocks more than others.


With the Federal Reserve looking to further stimulate the U.S. economy with its latest initiative, Susquehanna International Group analyst Vasily Karasyov said Monday that among Hollywood conglomerate stocks "Viacom and Time Warner look best positioned this time."

The title of his report, "QE Infinity and Beyond," was not only a Toy Story pun, but also referred to the central bank's plan to continue to support U.S. economic and financial health. QE stands for "quantitative easing," a method used by central banks to stimulate economies when conventional monetary policy is seen as ineffective. The Federal Reserve previously used two rounds of such stimulus packages, known as QE1 and QE2.

"The previous rounds of quantitative easing had an outsized positive effect on media stocks: the S&P 500 Media index outperformed the broader market," Karasyov said. "Our analysis shows, however, that QE3, aka QE Infinity, may not have a similar broad positive impact, at least in the remainder of 2012."

Explained the analyst: "This time...[stock] multiples kept expanding into the announcement, with some companies trading in line with 2007 relative to the S&P. We therefore expect more diversion in stock price in the mid-term."

Among entertainment conglomerates, many have also seen continued stock gains.

"We highlight Viacom and Time Warner in the QE Infinity context as stocks trading at relative multiples below pre-recession levels compared to Disney and News Corp., which are now in line with 2007," the "last clean" year before the financial crisis and recession that provides a good point of comparison, Karasyov said. Plus, the overall impact of the latest round of stimulus is seen as more modest, providing more of a chance of diverging effects, he added.

During the QE1 initiative, the S&P 500 Media index was up 54 percent, compared with a 35 percent gain of the broader market, according to Karasyov. "During QE2, it increased 36 percent, while the market grew 24 percent," he added.

Viacom continues to face challenges though. "Of course, Nickelodeon ratings will have to stabilize in the December quarter" to allow for a stock gain, Karasyov emphasized.

On TW, meanwhile, he raised 12-month price target to $53 from $46.

Twitter: @georgszalai