Glass half full at half-year mark

How will media companies fare for the rest of the year?

NEW YORK -- It's been a roller-coaster ride for media and entertainment stocks in 2009, making for a mixed bag at the midyear mark as far as the industry's stock market success goes.

But most sector conglomerates are up year-to-date thanks in large part to a market-beating run-up from lows hit in early March amid signs of a bottom in the economic downturn.

However, that bounce has left Wall Street wondering whether some of the big entertainment stocks have gained more than is warranted given what is expected to be a drawn-out economic and advertising market recovery. Many look for the latest quarterly earnings season, which starts this month, to provide a better feel for where ad trends stand after first-quarter conference calls saw most CEOs at sector biggies talking about an ad stabilization.

One thing is for sure, though: Sirius XM shares are the biggest gainer in the broader space year-to-date, ending the first half of 2009 up by a triple-digit percentage count. The performance compares to a 1.8% gain in the broad-based S&P 500 index and a 3.8% decline in the Dow.

But others suffered further declines in the first two quarters, led by radio station group Cumulus, which was the worst performer on The Hollywood Reporter Showbiz 50 stock index for the first half of 2009.

Among entertainment congloms, shares of Viacom (+19%), Sony (+19%) and News Corp. (+12%) fared best in the first six months of 2009, according to data from Yahoo Finance that adjusts for stock splits and dividends. Walt Disney is up slightly for the year, while CBS Corp. (-14%) lagged its peers. For Time Warner, different financial information providers show different data - maybe because the company earlier this year completely separated from Time Warner Cable in a deal that included several steps. This or the inclusion or exclusion of other factors could lead to differences in stock calculations. Yahoo Finance shows TW down 7%, but Bloomberg shows it up 13% year-to-date as of June 30.

Trading has been more volatile in recent weeks for the sector and overall market as investors have tried to get their heads around what might be next for stocks amid a lack of a near-term return to solid economic growth.

Most experts think there is only upside for media and entertainment biggies -- with some conditions.

"Yes, there is upside, but the companies have to prove themselves now," Miller Tabak analyst David Joyce said. "The companies have to show investors the money -- improve the advertising revenue comps and margins -- now that investors have shown the media companies the money again" in the form of the bounce since early March.

Joyce only expects modest ad improvements in the second-quarter earnings. "If, say, a TV station group had revenue down 30% in the first quarter, they might be down 27% in second quarter," he said. TW is his favorite stock.

Hal Vogel, president of Vogel Capital Management and a former analyst, remains bearish on sector stocks, though. Asked if there is more upside for them in the back half of 2009, he said, "No, not really much, if any -- maybe another 5% at best." He expects a renewed decline after that.

The ad picture will remain key for ad-dependent stocks like CBS, which ended the first half on a low note Tuesday as Deutsche Bank analyst Doug Mitchelson cut his earnings estimates for the second quarter, citing an unlikely real ad boost near-term amid expectations for a slow recovery.