Morgan Stanley Analyst Lowers 2012 U.S. Ad Forecast

"We still see growth - particularly in national TV - and 20 percent returns on average for our stocks," Benjamin Swinburne says though.

NEW YORK - Morgan Stanley analyst Benjamin Swinburne on Monday cut his U.S. advertising forecast for 2012, joining a growing chorus of Wall Street observers who have become more cautious on next year.

But Swinburne said he remains optimistic on entertainment stocks.

"While we are lowering our ad outlook, we still see growth - particularly in national TV - and 20 percent returns on average for our stocks," he wrote in a research report. Recent stock declines imply that some risk is already "priced in, while we remain confident in key secular growth drivers," he added.

Swinburne lowered 2012 U.S. ad growth forecast from 4.2 percent to 3 percent "driven in large part by a deteriorating macro outlook." The 3 percent growth forecast includes 1.4 percent growth from political ads and 0.7 percent from the Olympics, with the rest being organic gains.

"While falling GDP growth expectations for 2012 [are] a concern for investors, we point out that in the first half of 2011, GDP grew only 1.9 percent, and total advertising grew 5 percent-6 percent," Swinburne highlighted.

Pointing out big entertainment stocks' underperformance compared to the broad-based S&P 50 stock index since July, the Morgan Stanley analyst said that macro-economic trends "will have an outsized impact" on sector stocks. "However, as it relates to earnings, we point out that about 40 percent of the TV industry's revenue is coming from non-ad sources and that we expect this revenue to grow 8 percent-10 percent, with online distribution and international TV licensing fees potentially lifting sector growth higher."

Entertainment companies are set to report their latest quarterly earnings in the coming weeks. In another positive for investors, big media and entertainment companies continue to be leaders in capital returns via dividends and stock buybacks, Swinburne said Monday.

His top picks in the entertainment sector remain CBS Corp. and Walt Disney.


Twitter: @georgszalai