Entertainment Analysts Debate Ad, Stock Trends Amid Market Turmoil

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Credit Suisse picks Time Warner, Google and Barry Diller's IAC as U.S. sector favorites in the current volatile market, while Nomura lowers its 2011 ad growth forecast.

NEW YORK - With August, which brought big stock market swings, coming to its end, entertainment industry analysts on Tuesday focused on discussing latest stock picks and advertising trends.

Nomura analyst Michael Nathanson downgraded his 2011 and 2012 ad forecasts and highlighted a recent weakening of momentum, but predicted the ad market wouldn't collapse as it did in 2008 amid recession and the fallout from the financial crisis.

Meanwhile, in a report entitled "Top Picks in Volatile Times," Credit Suisse analysts picked Time Warner, Barry Diller's IAC and Google as their favorite media stocks in the current volatile environment.

"We continue to view Time Warner shares as inexpensive," Credit Suisse wrote. It has an "outperform" rating and $40 target price on the stock.

Google, which Credit Suisse rates at "outperform" with a price target of $700, is expanding its mobile exposure and is "exhibiting signs of material progress in other new business initiatives, including display, YouTube and Chrome," the firm said.

And IAC, rated "outperform" with a $52 price target, also "is compelling at current levels," according to Credit Suisse.

The firm's favorite media stock pick in Latin America is Mexican broadcast giant Televisa, which it rates at "outperform" with a $28 target price. "Televisa has a defensive portfolio of advertisers so broadcast revenues typically hold up well even in slower economy," Credit Suisse highlighted.

Amid the recent market turmoil, "every media segment bar exhibition has been in negative territory with the worst performance from radio broadcasting (-16 percent) followed by television (-15 percent)," Credit Suisse said. "Exhibition has outperformed with a gain of 1.6 percent. By geography the U.S. and Europe have delivered the worst performance - both down 12 percent."

Meanwhile, Nathanson said that second-quarter U.S. ad growth of 6.8 percent was lower than his 7.2 percent estimate and than first-quarter momentum.

"Despite the deceleration, total advertising growth was still solid led by double-digit strength at cable networks and online," he said. "Our national TV channel checks confirm a pretty slow August for ad demand after a moderate July...With September historically the most important month in the third quarter, we will continue to closely monitor any developments within our universe."

Amid current economic concerns, will the ad market suffer as it did during the last recession? "We believe it is important to differentiate how a potential slowdown this time could be very different from last time," Nathanson said, citing five key differences.

There has been no "massive credit-led collapse" like in 2008, and ad spend-to-GDP ratios remain near historical lows, the analyst highlighted. Third, "spending for key ad sectors like autos, retail and financials never recovered" as they are still down in the low teens compared with pre-2008/09 recession levels, he added. Finally, the secularly challenged print media is now a smaller contributor, and U.S. auto sales are well off their prior peak," Nathanson said.

He lowered his 2011 ad growth forecast from 3.6 percent to 3.3 percent and his 2012 projection from 5.0 percent to 4.5 percent.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai