Analysts identify must-have stocks

Regal, Time Warner, Liberty among recommendations

With the new year up and running, Wall Street analysts recently picked their favorite media and entertainment stocks. Time Warner, Disney, Time Warner Cable and Regal Entertainment are among the most popular recommendations, but analysts made arguments for a range of companies. So, buckle up for a ride to explore some of the industry's must-haves.

Regal selection

Thanks to record-breaking boxoffice trends, Regal has emerged as a popular choice on the Street to ride that wave.

"Our favorite entertainment name remains Regal Entertainment Group given its 5% dividend/12% estimated 2010 free-cash-flow yield and continued prospects for 3D boxoffice growth," Wunderlich Securities analyst Matthew Harrigan said in a recent note to investors. He rates the stock a "buy" with a $19 price target.

Merriman Curhan Ford analyst Eric Wold told clients last month to buy shares of Regal as he sees their price climbing as high as $19 this year, as well as smaller exhibitor Cinemark, on which he has a $17 price target.

Conglomerate focus

Barrington Research analyst James Goss likes Time Warner, which he rates "outperform" and has on his firm's annual list of "best ideas" for the new year.

"Management has been working toward a cleaner definition of the company's business mix for some time, and content is now the driving focus," he said, adding that "recognition of the exceptional brand franchises in this portfolio mix should lead to higher multiples for this overall entity." Goss has a $35 price target on TW.

Credit Suisse analyst Spencer Wang favors TW and Disney early in the new year and rates both "outperform." TW, on which he has a $35 price target, is "attractive from an offensive (18% earnings-per-share growth in 2010) and defensive (below-average ad exposure) perspective," he said. He likes Disney, on which he has a $36 target, for its "attractive mix of assets, which we believe are the least secularly challenged," and its Marvel acquisition. Plus, "Disney is on the cusp of a new positive content cycle with the upcoming releases of 'Alice in Wonderland,' 'Toy Story 3' and 'Cars 2,'" he added.

UBS analyst Michael Morris last month also picked "buy"-rated Disney as a sector favorite for the year.

"Don't wait too long to bring Disney back in focus," he wrote as he raised his price target by $5 to $38, citing similar reasons. "We expect Disney shares to outperform media peers over the next 12 months, with an estimated total return of 22% over that period."

Morris argued that investor interest in Disney will rebound "as enthusiasm for early cyclical stocks wanes and comfort with the stability of core consumer trends stabilizes."

Distribution plays

Among TV distributors, Wall Street likes Liberty Global and Time Warner Cable.

Harrigan calls them his favorite distribution plays for investors "given the excessive FiOS/U-Verse share losses implied in its stock price," which are unlikely to become reality in the case of TW Cable, and "potential M&A upside in markets such as Germany and Japan" for Liberty Global.

TW Cable also earned high marks as a compelling investment in the cable industry from Barron's, which predicted Sunday that its shares could rally about 30%-plus this year amid improving financial momentum and a possible stock dividend or share buyback.

Miller Tabak analyst David Joyce highlights smaller cable operator Mediacom Communications, though, predicting it has the biggest short-term and long-term upside among the stocks he covers. Still, he also likes Liberty Global and Sirius XM.

Getting Sirius

The latter has earned some Street cred of late despite a low stock price. Goss rates it "outperform" with a $1.10 price target, and he has it on his "best ideas" shortlist for the year, along with TW.

Sirius "continues to have considerable upside as it restores fundamental and financial momentum," he said, pointing to a recovery in auto sales and a turnaround last year to positive operating cash flow.

Other notables

-- Harrigan likes Viacom among the cable networks-driven biggies, citing around 9% affiliate-fee growth expectations for the year and "a free play on Paramount Pictures," which analysts have said is assigned near-zero value at the current share price. He has a "buy" rating and $36 price target on the stock.

-- The conglomerate stock that has gained the most during recent weeks is News Corp. Morris recently predicted that the company's shares, which have outperformed peers of late thanks in part to "Avatar," will do well into early next month, and he raised his earnings estimates and boosted his price target on the stock by $3 to $15.

"We expect shares to meaningfully appreciate toward our price target between now and earnings on Feb. 2 as investors uncover more details on ad strength, retransmission agreements and the magnitude of film performance in the quarter," he said.

Still, Morris remained "neutral" on News Corp. beyond February because of longer-term structural challenges in the newspaper business and subscriber-growth difficulty at Sky Italia.

-- Morris on Monday also shined a spotlight on one of the smaller entertainment stocks, upgrading Scripps Networks to "buy" and boosting his price target from $39 to $52. Calling it the "best media growth story," he argued that "consensus estimates significantly underestimate the earnings power of affiliate-fee increases and ad growth driven by higher ratings at Food Network and HGTV."

-- Goldman Sachs analyst Ingrid Chung continues to be bullish on DreamWorks Animation in the small- to mid-cap entertainment space, "even despite the stock's strong move over the last 10 or so months," she said. After all, "there is still plenty of room for consensus estimates to increase, driven by a strong slate in 2010 and 2011, a growing number of 3D screens, a potential FX tailwind and increasing ways DWA gets paid for its content."
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