Brean Favors CBS, Time Warner In Large-Cap Media; Says Hold Disney, 21st Century Fox, Viacom

Investor fears over the long-term impact of cord-cutting have weighed heavily on large-cap entertainment stocks in recent years. Despite the uncertainty of a changing media world, Brean Capital analyst Alan Gould sees some compelling value for selective investors.

“The group is trading at about a 25% discount to the S&P 500, close to historic record lows, and appears quite attractive to us,” Gould explained.

Brean has initiated coverage on five of the largest entertainment stocks. Here’s what Gould had to say about each company. Walt Disney Co DIS

Gould loves Disney as a long-term investment, but the stock has several headwinds in the near term, including a relatively high valuation in an environment of depressed multiples and extremely difficult film comps ahead.

Brean has a Hold rating on Disney.

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Twenty-First Century Fox Inc FOXA FOX

Gould believes that Fox’s cable networks will not be a source of weakness in the near future, but that the company could face forex pressures from the pound and the euro will only be partially offset by a stabilizing Brazilian real. Brean is also cautious on Fox’s film outlook, although Gould acknowledges the possibility of more surprise hits like “Deadpool.”

Brean has a Hold rating on Fox's class A shares (FOXA).

Time Warner Inc TWX

Gould believes Time Warner has fairly stable sports content costs ahead and should get a significant earnings boost from HBO Now. HBO’s next round of affiliate deals is a wildcard, but Time Warner’s film segment’s lackluster performance in recent years leaves plenty of room for upside considering the strong schedule ahead.

Bean has a Buy rating and $90 price target for Time Warner.

Viacom, Inc. VIA VIAB

Gould predicts margins will continue to be pressured due to programming costs rising faster than advertising income. He also notes that Paramount’s earnings have declined for five consecutive years.

Brean has a Hold rating on Viacom class B shares (VIAB).

CBS Corporation CBS

Despite minimal advertising and program licensing growth in the coming years, Gould estimates rising carriage fees will be enough to drive 11 percent CAGR in EPS for CBS in the years ahead, while the company continues to focus on programming expense management.

Brean has a Buy rating on CBS and a $65 price target for the stock.

Disclosure: The author holds no position in the stocks mentioned.