Media
Nice View from the Couch:
Upgrading Media
What's Changed
Industry View: Media In-Line to Attractive
Upgrading Media Industry View to Attractive from
In-Line, based on our favorable, differentiated view
of two key themes: (1) Our assessment of the secular
position of various media assets, particularly television,
and (2) the outlook for US advertising as it relates to an
economic recovery. Since the recession began in late
‘07, media has underperformed the market by 1500
basis points. Multiples have recovered off the bottom,
but ’09 EPS remain at depressed levels. Over next 12
months, we see 15-20% EPS growth driving ~15%
upside to group, and 25% upside to OW names.
More positive on TV usage, leverage with
distributors and advertising share: First, unlike
consensus, we think television and in particular cable
networks will not only avoid the fate of other traditional
media assets but will actually thrive in many cases due
to growing viewership, increased competition for their
product by pay-TV distributors, and the dominant
inventory for national brand advertising. We see affiliate
revenue growth for the group of 5-6% in ’10 and beyond.
Ad growth could surprise: Second, we believe that
macroeconomic indicators and easing comparisons
suggest ‘10 advertising growth could surprise; current
estimates suggest a low bar for any ad recovery. We
see 2% ad growth in ’10, 5% for TV (5% for TV ’09-’12).
Raising estimates across group: We are taking a
more cyclical position within Media, which leads us to
Upgrade DIS from EW to OW and CBS from UW to OW,
joining TWX as top 3 (all above consensus estimates)
ideas. Our appetite for cyclical exposure through
advertising also leads us to upgrade SNI to EW, joining
NWS where we remain EW. We downgrade DISCA to
EW and VIA to UW based on lack of cyclical exposure
and in case of VIA, below consensus estimates.