Street hopes b.o. translates well
Success of '300' may lift TW; News Corp. growing with MySpaceStocks of many sector biggies are trading closer to their 52-week highs than their lows ahead of the impending wave of latest quarterly earnings reports from the major entertainment conglomerates.
A rebounding boxoffice has helped the figures of several companies, Wall Street observers said. But many will look for updates on the still-developing digital strategies of the media giants and any signs of how they will do as the year unfolds.
Kicking off the first-quarter earnings parade Wednesday is Time Warner Inc., the world's largest entertainment company, which saw some Wall Street observers boost their earnings expectations in recent weeks.
Merrill Lynch analyst Jessica Reif Cohen recently raised her estimates for the quarter and full-year 2007, arguing that TW will see "improved financial performance and continued returns to shareholders in the coming year."
She also suggested that "there is further upside to our estimates and to consensus due largely to margin improvements at AOL and the improving performance of Warner Bros."
Given such possible outperformance, Reif Cohen reiterated her "buy" rating and $26 price target and argued that "the stock offers a compelling near-term opportunity for investors."
Goldman Sachs analyst Anthony Noto expects a "solid" earnings report from TW, driven by growth at AOL, cable and cable networks with upside from film on the back of "300" and "TMNT."
The Walt Disney Co. will report its fiscal second-quarter results next week, and analysts also have been mainly bullish, with several boosting their expectations in the run-up to the financial update.
Bear Stearns analyst Spencer Wang said in a recent report that Disney remains on a financial tear given current strength across its businesses, and he also raised his full-year profit estimate.
However, he also warned, "While investor sentiment in Disney remains quite positive, recent data points raise three possible red flags related to (theme) park capital expenditures, ABC ratings and demand for animation."
Wang pointed to the boxoffice performance of "Meet the Robinsons" in arguing that the animation film market might be saturated. "This animated film opened to a modest $25 million, below the $40 million for 'Chicken Little,' " he said. "We believe this supports our concern that secular demand for CG (animation) may be waning."
Street observers are less excited about the first-quarter outlook for Viacom Inc. and CBS Corp., even though both stocks finished last week close to their 52-week highs.
Wang is more bullish on Viacom than many peers, saying in a recent report that "the Street is under-estimating the impact of digital ad revenue growth and a budding turnaround at the studio."
He predicts 6.8% U.S. cable networks ad growth for the latest quarter. Plus, he said Viacom's boxoffice performance "has been strong year-to-date with first-quarter U.S. boxoffice up 20.5%." If this trend continues, Viacom could exceed financial estimates for the year, Wang added.
For CBS Corp.'s first quarter, Reif Cohen projects a slight 1% operating-cash-flow decline. But "a return to meaningful growth over the longer-term could generate significantly more upside for the stock," she added, reiterating her "buy" rating and $36 price target.
Finally, News Corp.'s fiscal third-quarter earnings report will provide latest updates on how the conglomerate's digital and other developing assets are doing.
Pali Research analyst Richard Greenfield recently estimated that online networking site MySpace's monthly revenue has passed the $30 million mark.
Reif Cohen increased her quarterly operating income growth estimate for News Corp. from 15% to 17% "to reflect continued strength in the film division, only partially offset by weakness at the newspapers, Star TV and MyNetworkTV as well as lower Sky Italia estimates."