The 2020 pandemic has facilitated what many investors see as a secular decline in traditional media and a rise in streaming video services.
On Wednesday, KeyBanc initiated coverage of four large-cap media companies at the epicenter of this transition.
The Analyst: Brandon Nispel initiated coverage of the following four stocks:
- Walt Disney Co DIS, Overweight rating, $177 price target.
- Discovery Communications Inc. DISCA, Sector Weight rating, $31 price target.
- Fox Corp FOXA, Sector Weight rating, $29 target.
- CBS Corporation VIAC, Underweight rating, $30 target.
The Thesis: Investors should anticipate more downside risk to earnings and revenue numbers for these four companies than upside, and valuation multiples will likely be limited, Nispel said in the initiation note.
In the near-term, the analyst said expectations are extremely low, and advertising trends will likely improve along with the economic recovery.
Yet he said streaming is a “fundamentally worse business” than traditional pay TV, adding that these companies will struggle to grow profits given investment requirements and the competitive landscape.
Of the four stocks, Nispel is most bullish on Disney.
“Disney appears positioned to thrive in new media given its massive library [of] content, content creation capability, and ability to distribute content to subscribers globally.”
On the other end of the spectrum, Nispel said CBS is most exposed to legacy media.
“VIAC streaming services lack original content and global reach, which are unlikely to match the size and scale of legacy networks,” the analyst said.
Nispel said he is “cautiously optimistic” about Fox’s future.
“While FOXA lacks a paid DTC strategy, we believe FOXA's narrow focus on news and sports and leading cable networks positions it to be the relative winner in PayTV.”
Discovery has under-monetized cable assets, Nispel said.
“However, it remains unclear how monetization will improve and DISCA's content appears easily replicated where we would like to see progress on DTC, margins stabilize, and monetization to improve before potentially becoming more constructive,” the analyst said.
Benzinga’s Take: It’s not surprising that KeyBanc is most bullish on Disney given that Disney has made the biggest bang so far in the streaming space via its highly successful 2019 launch of Disney+. The firm’s warnings about competition and limited profitability in the streaming model could be a cause for concern in the long-term.
Photo courtesy of Disney.
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