Bank of America analyst Jessica Ehrlich downgraded ViacomCBS (VIAC) to Neutral as she sees limited catalysts for further near-term upside. Meanwhile, Goldman Sachs analyst Brett Feldman started coverage of ViacomCBS with a Buy rating as he believes the company's can drive growth in streaming and digital revenues that more than offsets pressures on its linear business.
LIMITED CATALYSTS: Bank of America analyst Jessica Ehrlich downgraded ViacomCBS to Neutral from Buy with a $25 price target. The analyst sees limited catalysts for further near-term upside given that the bulk of the company's re-transmission renewals for 2020 have now been finalized, said Ehrlich, who also noted that upfront activity is likely to be limited or pushed out into 2021. She additionally sees an overhang from the NFL and major sports broadcast not being guaranteed to return in the fall.
In the more immediate term, the analyst acknowledges that the second quarter appears to be shaping up better than her early estimates as ViacomCBS’ quarter will reflect healthy direct-to-consumer and retransmission growth, more than offset by softer advertising, theatrical and licensing trends. All-in, Ehrlich anticipates a revenue decline of (15%) and an adjusted OIBDA decline of (7%).
STREAMING, DIGITAL REVENUES GROWTH: More bullish on ViacomCBS, Goldman Sachs analyst Brett Feldman initiated coverage of the stock with a Buy rating and a $34 price target. The analyst told investors he believes the company's "early-mover advantage" in direct-to-consumer video and the "mass market awareness and appeal" of its content position ViacomCBS to drive growth in streaming and digital revenues that more than offsets pressures on its linear business. Further, he believes ViacomCBS' streaming opportunity "looks materially underappreciated and under-valued."
Overall, Feldman estimates that U.S. pay-TV subscribers will be declining 10% year-over-year by the fourth quarter, a significant acceleration from down 4% in the same quarter of the previous year and down 1% in the fourth quarter of 2018. These pressures reflect more streaming options, higher prices for facility and virtual MVPDs' services and economic weakness. With the major media companies generating 30%-90% of their revenue from linear video advertising and affiliate fees, the analyst believes investors’ outlook for their ability to replace these revenues via direct-to-consumer services will be a key stock driver.
OTHERS TO WATCH: Goldman’s Feldman also initiated coverage of several other names in the media space. The analyst started Disney (DIS) with a Buy rating and $137 price target as he believes the company is well positioned to pivot into direct-to-consumer video models and that consensus estimates underestimate the profitability of Disney+. Disney’s "best-in-class" brand, global distribution, production assets, content library and "strong" balance sheet position it to build scaled direct-to-consumer video platforms in the "highly competitive" streaming environment, Feldman told investors in a research note.
The analyst also started coverage of Fox Corp. (FOXA) with a Sell rating and $21 price target. The networks owned by the company focus on live sports and news, and older viewership demographics. When coupled with Fox's "lack of library content and limited production assets," it will make it challenging for the company to shift its business to direct-to-consumer models, Feldman contended.
Citing the company's "high exposure" to linear video, which he expects to come under increased pressure as cord-cutting accelerates, he initiated AMC Networks (AMCX) with a Sell rating and $19 price target. The analyst also highlighted further pressures on advertising revenue as the AMC channel struggles to offset ratings declines from its most-viewed show, The Walking Dead.
Additionally, Feldman started coverage of Discovery (DISCA) with a Neutral rating and $20 price target given the lack of a "meaningful" direct-to-consumer offering with scaled distribution, and Lionsgate (LGF.A) with a Neutral rating and $8 price target, citing execution risk for the company as Starz "pivots away" from fixed-fee carriage agreements to a-la-carte and over-the-top offerings.
PRICE ACTION: In morning trading, shares of ViacomCBS are fractionally up at $23.05.
"Street Fight" is The Fly's recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.
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