Disney, Comcast, Fox Get Top Ratings Among Media Conglomerates Thanks To Sports Rights, Streaming Strength: Analyst Prefers 'Deep Competitive Moats'

Several media stocks were sized up by an analyst as the sector saw ongoing changes from cord-cutting and the growth of streaming platforms.

The Analyst Ratings: Goldman Sachs analyst Michael Ng initiated coverage on the following stocks with the following price targets.

Walt Disney Co DIS: Buy rating, $125 price target

Comcast Corp CMCSA: Buy rating, $44 price target

Fox Corp FOXFOXA: Buy rating, $42 price target

Warner Bros. Discovery WBD: Neutral rating, $8.50 price target

Paramount Global PARAPARAA: Sell rating, $9.50 price target

Stagwell Inc STGW: Neutral rating, $6.50 price target

The Analyst Takeaways: Competition from streaming platforms, social media and technology companies is challenging the media sector, Ng wrote in a new investor note.

"We prefer U.S. media stocks with deep competitive moats that should provide better visibility into growth," Ng said.

The analyst said lower exposure to linear television, higher exposure to sports and news, strong portfolios of brands and a direct-to-consumer segment close to profitability will make a media company stand out.

"The U.S. media conglomerates (DIS, FOXA, WBD, PARA and CMCSA) have an average growth outlook that includes 3% revenue growth, 5% EBIT growth, and 7% EPS growth."

Ng said the media sector faces increased competition as social media and internet companies establish direct relationships with consumers.

"This shift from traditional to internet content distribution has reduced the bargaining power of TV/film studios and linear TV networks."

Media companies also face the ongoing threat from streaming leader Netflix Inc NFLX, Ng wrote.

The analyst said Netflix has done a better job of tailoring content to its audience with recommendation engines and hitting on trending themes like survival ("Squid Game"), historical romance ("Bridgerton") and science fiction ("Stranger Things").

"Media companies are un-bundling and re-bundling. Cord cutting has jeopardized the benefits of bundling for TV networks."

Goldman Sachs on Disney: The media conglomerate stands out to the analyst with a strong lineup of sports rights and diversification with box office revenue. The analyst also highlighted the company's growing theme park investments with strong returns on invested capital.

"Diversified earnings compounder best positioned to compete in streaming," Ng said of Disney. "We consider DIS a high-quality EPS compounder that should deliver a 14% EPS CAGR driven by 6% revenue growth, 9% EBIT growth, and contributions from share buybacks & other income."

The analyst said Disney's long-term sports rights for ESPN can help with future growth.

Ng also said Disney's streaming offers strength.

"In our view, DIS's DTC platforms (Disney+ and Hulu) are best positioned to compete with streaming market leader Netflix and we expect Direct-to-Consumer to inflect towards steady state profitability by the end of this year."

Goldman Sachs on Comcast: Cord-cutting and competition in the broadband sector could hurt Comcast, Ng wrote.

The analyst gave the stock a Buy rating with strong free cash flow generation and capital returned to shareholders via buybacks and dividends.

"CMCSA is a quality earnings compounder with 3% EBITDA growth (2023-2028E CAGR) and 8% EPS growth," Ng said.

Ng also highlights Comcast's theme park segment with the opening of Epic Universe in 2025 that could double the size of Universal in Orlando.

The analyst also saw Comcast's Peacock streaming platform benefiting from the 2024 Summer Olympics and an exclusive NFL game in 2024.

Goldman Sachs on Fox: The analyst noted Fox got "nearly all of its revenue" and 100% of its 2024 estimated EBITDA from linear TV, but it has strength with its sports and news content.

"Its focus on news (Fox News Channel) and sports (FS1, FOX broadcast) helps establish a competitive moat against intensifying general entertainment content competition from streaming services," Ng said.

The analyst said Fox is attractively valued and its strong assets can help fight off pressure from cord-cutting.  

"Additionally, FOXA should benefit from a robust 2024 political season, which should contribute an incremental $280 million of political spend."

Goldman Sachs on Warner Bros. Discovery: Strong sports rights and content help cushion Warner Bros. Discovery, the analyst wrote.

The analyst was cautious after the company lost out on renewing its NBA rights package and could lose access to the North American sports league.

Ng said Warner Bros. Discovery is facing margin compression with rising content costs.

"We expect WBD's linear network business should be impacted by ongoing cord-cutting trends and weakening content performance, which will weigh on affiliate fees & advertising," Ng said.

The analyst said the company's Max streaming platform is showing strength with international expansion and content investments.

Goldman Sachs on Paramount: The media company is highly exposed to linear television with its direct-to-consumer unit posting losses and having limited visibility, Ng said.

The analyst said Paramount has "fewer tentpole brands" that could be leveraged with additional revenue streams like consumer products and theme parks.

"While encouraged by continued progression towards Paramount+ profitability and theatrical box office normalization, we do not anticipate that this progress can offset persistent secular headwinds in PARA's linear cable and broadcast network business," Ng said.

The analyst was encouraged by Paramount's sports rights and price increases for Paramount+, they may not be enough to offset other weaknesses.

Goldman Sachs on Stagwell: The global advertising company has high exposure to technology clients, which could lead to quicker growth, Ng said.

"That said, we expect technology and digital exposure to intensify, pressuring long-term organic revenue growth," Ng said.

The analyst sees Stagwell having increased competition from larger ad agencies in the future. A limited international footprint for Stagwell could also be seen as a negative, according to the analyst.

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