Stock Roundup: Loop Capital Markets Assesses The Media, Entertainment Space

Loop Capital initiated coverage of seven names within the media and entertainment space this week.

The Analyst

Loop Capital Markets' Alan Gould initiated coverage of the following companies:

• News Corp NWSA with a Hold and $17 price target.
• Viacom, Inc. VIAB with a Hold and $33 price target.
• Walt Disney Co DIS with a Buy and $130 price target.
• CBS Corporation CBS with a Buy and $75 price target.
• Time Warner Inc TWX with a Buy and $107.50 price target.
• Lions Gate Entertainment Corporation Class A Voting Shares LGF with a Buy and $36 price target.
• Twenty-First Century Fox Inc FOXA with a Buy and $43 price target.

News Corp

• News Corp's stock has benefited from a "nice run" and remains positioned for growth, Gould said. 
• The perception of News Corp as a "declining newspaper company" is inaccurate, as news and information only accounts for 16 percent of its value, the analyst said. 
• News and information revenue and EBITDA have fallen by one-third and two-third, respectively, over the past six years.
• EBITDA declines are likely to continue moving forward, but at a more moderate 6-percent rate, according to Loop Capital Markets.

Viacom

• Viacom's new management has succeeded in stabilizing the company and repairing broken distributor relationships, Gould said. 
• The company is a leader in advanced digital advertising after the launch of Viacom Vantage in 2015, he said. 
• Viacom is projected to see revenue growth in the third quarter in its media networks, according to Loop. 
• The stock "appears inexpensive" at 8.2x projected earnings and 7.3x EBITDA, but the company still faces multiple macro trend headwinds and a lack of a "must-have" networks in its portfolio, Gould said. 

Disney

• Disney's proposed acquisition of Fox's media and entertainment assets positions the company to be a "more competitive player" in streaming, Gould said. 
• Disney continues to "dwarf the competition" in film profits, and Loop projects this trend will continue.
• Disney's theme parks continue to offer strong returns on assets, and the company plans on opening four "lands" and three cruise ships in the coming years, according to Loop. 
• Disney is led by a strong management team and backed up by compelling content and a global scale, Gould said. 

CBS

• CBS boasts the greatest exposure to retrans/reverse comp revenue that can grow from $1.3 billion in 2017 to $2.5 billion by 2020, according to Loop's projections. 
• The namesake CBS network is the most-watched TV network, and the company's Showtime property is a premium a la carte network.
• CBS has "enough" sports programming to compete with peers, Gould said. 
• CBS' stock is trading at a 40-percent discount to the S&P 500 index, but boasts a 15-percent projected five-year EPS compounded annual growth rate profile, the analyst said. 

Related Link: Viacom, CBS Are Better Off Apart, Says Rosenblatt Securities

Time Warner

• Time Warner's tie-up with AT&T is likely to pass, and shareholders will receive $107.50 per share, which implies a 12-percent return, Gould said. 
• If the deal is rejected, the company will likely authorize a $7-billion share buyback program, he said. 
• Time Warner and its properties, especially HBO, will be "relatively immune" to the cord-cutting trend, in Loop Capital's view. 
• Time Warner's stock is trading at 12.4x 2018 EPS estimate, which is a discount to its five-year average multiple of 16.3x on forward earnings.

Lions Gate

• Lionsgate operates in a "sweet spot" within the media industry and is also unlikely to be impacted by cord-cutting trends, Gould said. 
• The company has minimal exposure to the advertising declines within the whole media landscape, he said. 
• Lionsgate's acquisition of Starz will prove to be accretive and improves the predictability of its earnings and cash flow, according to Loop. 
• The analyst's $36 price target is based on a 10-percent discount to Lionsgate's valuation of $40 per share if it were a private company.

Twenty-First Century Fox

• The majority of Twenty-First Century Fox's assets will be acquired by Disney, but Comcast might also present a competing bid, Gould said. 
• The remaining news business is a "must-have" channel, even for cord-cutters, as its key channels are on all of the new over-the-top streaming platforms, the analyst said. 
• The "New Fox" will continue being one of the six most important traditional TV networks that hold "ultimate negotiation power" with distributors and consumers, he said. 
• The "New Fox" also deserves a higher multiple than the average cable network, as Fox News Network will account for 70 percent of total EBITDA, according to Loop. 

Related Link:

Fox News Benefiting Most From Trump-Inspired Bump In Prime-Time News Ratings