Shares for broadcast companies and CBS likely will take a hit if the conventional wisdom is wrong and justices uphold Aereo’s right to stream TV signals without payment, Wells Fargo Securities’ Marci Ryvicker forecasts this morning. Justices should make their decision before June 30, when the current term ends. If they agree with Aereo — which says it merely leases antennas so consumers can access free TV — then many on Wall Street say stations will lose leverage to demand rising retransmission payments from pay TV providers. Broadcast company stocks could fall as much as 20%, and CBS could drop 7%, Ryvicker figures.
Investors shouldn’t worry: an Aereo win wouldn’t change things for the short to mid term, she says. Still, “we do acknowledge that sentiment will drive these stocks lower” referring to a group that includes TV station owners Sinclair, Media General, Nexstar, Gray Television, and Journal Communications. The broadcast companies’ shares “seemed to be somewhat ‘rocked’ by the Supreme Court’s decision to review” the Aereo case. As for CBS, Ryvicker says investors might decide it’s just worth 12.7 times expected per share earnings — down from its current trading price at 13.7 times — which would cut the price by 7%. But “we don’t anticipate it staying there for long,” in part because “CBS can pursue its option to go straight to cable or figure out some sort of other business model that would lessen any potential long term impact of Aereo.” Disney, Fox and Comcast (which owns NBCUniversal) likely wouldn’t see more than a low single digit drop for a day or so. They “own cable networks so it’s really hard to see any change to the business model regardless of the Supreme Court’s decision.”
If Aereo loses, then investors who have stayed on the sidelines might feel comfortable about investing in broadcast companies, giving their stocks a potential bump of about 12%. And CBS shares could rise 6% if buyers decide it’s worth 14.4 times earnings, about the same level as Time Warner. Broadcasters have less to gain from a victory because Wall Street already expects them to prevail. Odds of an Aereo win dropped to 30% from 50% based on justices’ challenging comments to its lawyers during oral arguments on April 22, the analyst says. But she adds that “there is NEVER a guarantee when it comes to litigation” — which is why many investors have asked her to assess the risks if the consensus is wrong.
Ryvicker acknowledges, though, that her heart isn’t in this analysis. “At the end of the day, we don’t view Aereo as that big of a deal,” she says.