In a new report, Pacific Crest analyst Andy Hargreaves named the firm's top network stock picks for 2016. Overall, Pacific Crest sees 2016 as a strong year for networks.
Solid Fundamentals
Without any major disruptions to fundamentals coming in 2016, Hargreaves predicts that low market expectations coupled with election cycle advertising and only moderate pay-TV subscription declines will ultimately result in solid profit growth for many of the top network names.
"[The] average multiple for the group is very close to multi-year historical averages and below the broader market, which creates a slightly positive risk/reward around valuation, in our view," he added.
Related Link: Has The NFL's Audience Reached Its Peak?
Hedges To Watch For
Despite the bullish outlook, Hargreaves mentions two possible negative catalysts that could shock the market this year. First, if the Viacom, Inc VIAB/DISH Network Corp DISH negotiations take a turn for the worse, it could stir negative sentiment within the group.
In addition, NFL Thursday Night Football bidding could indicate that the heavy cost of sports rights will continue to balloon in coming years.
Top Picks
According to Hargreaves, Pacific Crest believes that certain networks are better-positioned than others headed into 2016. The firm names Overweight-rated Twenty-First Century Fox Inc FOXA, AMC Networks Inc AMCX, Netflix, Inc. NFLX and Time Warner Inc TWX as its top picks.
Disclosure: the author holds no position in the stocks mentioned.
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