Wells Fargo Initiates On Media Stocks, Disney Among Top Picks

Media stocks were on the move on Tuesday after Wells Fargo initiated coverage on the space. CBS Corporation CBS, Walt Disney Co DIS and Fox Corp FOXFOXA were among the most noteworthy initiations among the traditional TV group.

CBS

Analyst Steven Cahall initiated CBS with an Underperform rating and $40 price target.

He said that even after years of planning CBS’s merger with Viacom, Inc. VIAB, there have been very little communication regarding the long-term strategy for the combined company. As a result, Cahall said the market will likely punish the stock with a relatively low valuation relative to its peer group.

Fox

Cahall initiated coverage of Fox with an Underperform rating and $30 target.

He said he is bearish on sports and expects sports rights prices to rise 7% annually through 2025. Wells Fargo is projecting Fox’s TV opex will rise 9% annually in that time, driven by its NFL deal renewal. While Cahall said Fox should be able to generate revenue growth for the time being, rising costs will eat into margins and likely weigh on share price.

Disney

Cahall initiated Disney with an Outperform rating and $173 target.

He said Disney shares have not yet unlocked the full value associated with the company’s transition to streaming. Cahall projects Disney will reach 16 million Disney+ subscribers, 39 million Hulu subscribers and 5 million ESPN+ subscribers by the end of 2020.

“We believe the DIS’s beauty is that it’s a hub of content creation, with a formidable content engine that includes spokes of monetization from parks, consumer products, media networks, and DTC,” he wrote in a note.

Wells Fargo Says Netflix Is At A Turning Point

Other Initiations

In addition to the three stocks mentioned above, Wells Fargo initiated coverage of the following TV stocks as well:

• AMC Networks Inc AMCX, Market Perform rating.
• Discovery Communicants DISCA, Outperform rating, $35 target.
• Lions Gate Entertainment Corp. (NYSE: LGF-A)(NYSE: LGF-B), Outperform rating, $15 target.
• Netflix Inc NFLX, Market Perform rating, $288 target.
• Viacom, Underperform rating, $23 target.
• Gray Television, Inc. GTN, Outperform rating, $21 target.
• Nexstar Media Group Inc NXST, Market Perform rating, $113 target.
• Sinclair Broadcast Group Inc SBGI, Market Perform rating, $48 target.
• Gannett Co Inc. TGNA, Market Perform rating, $17 target.
• E. W. Scripps Co SSP, Outperform rating, $17 target.

Benzinga’s Take

Wells Fargo’s commentary on Disney is particularly insightful and gives investors an understanding about how the TV landscape is changing. Not only is Disney evolving by adapting a direct-to-consumer approach, Cahall is predicting the market will actually reward the stock with a higher multiple.

Investors should be on the lookout for other TV stocks that could generate upside simply by announcing DTC strategies.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.