Entertainment Pair Trade? Morgan Stanley Upgrades AMC Networks, Downgrades Starz
In separate reports published Monday, Morgan Stanley analyst Ryan Fiftal maintained a cautious rating on the entertainment industry, while commenting on the headwinds and changing the ratings on two key players.
Analyst Ryan Fiftal downgraded the rating on Starz (NASDAQ: STRZA) from Overweight to Equal-weight, while reducing the price target from $46 to $42. Fiftal said that the previous rating was based on the "dual drivers" of operating momentum and M&A potential.
However, the 2Q results reflected that sub growth had not translated into top-line growth, lowering the confidence in Starz's operating momentum. While the M&A thesis remained intact, "tax frictions" could result in international buyers remaining "on the sidelines" until 2016, Fiftal mentioned.
Starz's shares have surged 35-40 percent year-to-date, while there was "no clear catalyst" until next year, the Morgan Stanley report explained.
The EPS estimates for 2015, 2016 and 2017 have been reduced from $2.60 to $2.53, from $2.73 to $2.51 and from $3.45 to 3.19, respectively.
Fiftal upgraded the rating on AMC Networks Inc (NASDAQ: AMCX) to Overweight, while raising the price target to $94. "While not immune to industry headwinds, AMCX can outperform thanks to positive idiosyncratic factors," the analyst said.
Given the company's "relatively small size," its earnings are "more directly tied to content success" than experienced by its peers. Although content success was difficult to predict, Fiftal expressed optimism regarding the company's pipeline, saying that the upcoming sequel, Fear the Walking Dead, had "enough potential tonnage to positively skew risk to viewership and ad revs," Fiftal added.
In the report Morgan Stanley noted, "In the past we have also expressed concern that AMCX's relative lack of scale limits its ability to monetize content success via affiliate fees, but surprisingly strong affiliate revenue acceleration in 1Q (up mid-teens YoY vs. mid-to-high single digit run-rate prior) and positive guidance suggests that AMCX's strong programming is providing it sufficient leverage."
The EPS estimates for 2015, 2016 and 2017 have been raised from $4.66 to $4.83, from $5.38 to $5.67 and from $5.78 to $6.21, respectively.
Latest Ratings for AMCX
|Nov 2016||Albert Fried||Downgrades||Overweight||Underweight|
|Oct 2016||Pacific Crest||Downgrades||Overweight||Sector Weight|
|Oct 2016||FBR Capital||Initiates Coverage on||Outperform|
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