Big Media companies have lost $70 billion in market value over the last two weeks. And some will probably lose even more today following the latest vote of no confidence in their stocks by an influential Wall Street analyst.
Cowen and Co’s Doug Creutz just reduced his earnings estimates and price targets for CBS, Disney, Discovery, Fox, Scripps Networks, and Viacom saying that their stocks are “not dead, but in purgatory.” His report follows similar ones this week by Wells Fargo Securities’ Marci Ryvicker and Bernstein Research’s Todd Juenger.
Creutz says that CBS is “better positioned against sector headwinds,” and that investors might consider Viacom and Time Warner attractive at their current prices. Still, “we don’t see a lot of upside to being heroic right now.”
In early trading this morning, Disney is -1.5% while Discovery, Fox, Comcast, CBS, and Viacom are basically flat.
The Dow Jones U.S. Media Index has declined 11.5% since August 4, when Disney trimmed some of its financial forecasts after acknowledging that it had seen some subscriber losses at ESPN — the company’s biggest profit driver. Over the same period, the benchmark Standard & Poors’ 500 is off 3.8%.
Creutz — who had been “mildly negative” on Big Media for months — says Disney triggered what’s known as a “Minsky moment”: a point when investors who had bet on a company or industry’s continued growth suddenly lose faith.
Disney’s “a loved company.” What’s more, it had “only given one item of guidance in the last ten years” — for ESPN. When Disney “indicated they would miss that guidance,” it was too important for investors to ignore.
Although pay TV-driven content providers aren’t distressed, there’s “a tremendous amount of uncertainty about what the future holds for Big Media companies, and more importantly, that the uncertainty is highly unlikely to be resolved until at least 3-5 years from now,” Creutz says.
Cord cutting and other consumer strategies to free themselves from the pricey pay TV bundle “are likely to be slow but steady negative drips over a long time period.” That makes it risky to invest in Big Media stocks, even though the analyst says that the companies “will remain significant players in the media space 10 and even 20 years from now.”
Creutz’s revaluation of the stocks reflects his view that cable networks will lose about 1% of their subscribers every year, rising to a 2% drop in 2018 before “slowly moderating thereafter.” He also is “somewhat lengthening” the period he figures national TV ad sales will weaken. The move of dollars to digital platforms “is real and significant.”
On top of that, he has “yet to see any meaningful improvement” in TV ratings more than a year after Nielsen reports began to show steep drops for most broadcast and cable networks. “Total viewership at broadcast and cable networks was down 5.2% [year over year] between June 29 and August 17, roughly stable” with the 5% drop in Q2, he says.