Time Warner, CBS Remain Credit Suisse's Top Media Picks
Credit Suisse's Omar Sheikh maintained an Overweight view on the U.S. Media & Entertainment sector, expressing increasing confidence regarding the stabilization of industry trends and saying that large-cap valuations appear “compelling.”
“After a choppy two years, the sector is well-placed to attract investor support,” analyst Omar Sheikh commented, while naming Outperform-rated Time Warner Inc (NYSE: TWX) and CBS Corporation (NYSE: CBS) as the top picks.
The price target is at $90.
Although Time Warner’s Q4 results missed expectations, this is unlikely to continue into 2016, Sheikh said. The company announced its 2016 guidance ahead of the estimates. The underlying operating income and EPS estimates for 2016 have been raised from $7.56bn to $7.61bn and from $6.04 to $5.25, respectively.
Time Warner is expected to achieve robust growth going ahead, given “visibility on double-digit affiliate fee growth at Turner; an affiliate renewal cycle about to start at HBO; and a richer slate at Warner Bros. from this year,” Sheikh mentioned.
The price target has been reduced from $75 to $70.
CBS has suffered 18 months of earnings deterioration and “we now see upside to our forecasts driven by potentially higher content licensing revenues; from the current strength in scatter pricing; and from better rates for retrans/reverse comp deals,” the analyst wrote.
The EPS estimate for 2016 remains unchanged, while for 2017 has been reduced by from $4.91 to $4.62 to reflect higher interest expense, a higher share count and a bigger step-down in Local Broadcasting as a result of the non-election year.
“We continue to regard CBS as being in a structural sweet-spot in the industry, with zero exposure to basic cable networks and with pricing for its content rising both inside and outside the ecosystem,” the Credit Suisse report added.
Latest Ratings for TWX
|Feb 2017||Moffett Nathanson||Downgrades||Buy||Neutral|
|Dec 2016||Brean Capital||Downgrades||Buy||Hold|
|Nov 2016||Moffett Nathanson||Upgrades||Neutral||Buy|
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