Why Goldman Sachs Is Bullish On Disney And CBS, But Bearish On Fox And AMC

The media landscape is changing rapidly, creating the opportunity for major winners and losers in the space.

On Monday, Goldman Sachs initiated coverage of six media stocks, and their coverage ranges from bullish to bearish within the group.

The Media Analyst

Goldman analyst Brett Feldman initiated coverage on these six media stocks:

• Walt Disney Co DIS, Buy rating, $137 price target.
• CBS Corporation VIAC, Buy rating, $34 price target.
• Discovery Communications Inc DISCA, Neutral rating, $20 price target.
• Lions Gate Entertainment Corp. (NYSE: LGF-A), Neutral rating, $8 price target.
• Fox Corp Class A FOXA, Sell rating, $21 price target.
• AMC Networks Inc AMCX, Sell rating, $19 price target.

The Media Thesis

Feldman said cord-cutting is certainly not a new trend in traditional media, but just because legacy media companies know what they need to do to stay relevant doesn’t mean it will be easy for them to actually do it.

“With the major media companies generating 30-90% of their revenue from linear video advertising and affiliate fees, we believe investors’ outlook for their ability to replace these revenues via direct-to-consumer (DTC) services will be a key stock driver,” Feldman wrote in the note.

He said Disney+ has clearly been an early success in the company’s pivot to a DTC model, but investors may not fully appreciate how well CBS is positioned to make the turn as well.

On the other end of the spectrum, Feldman is skeptical of Fox’s ability to transition away from a linear model, and AMC’s niche over-the-top offerings aren’t coming close to offsetting declines in linear business at this point.

Benzinga’s Take

The digital transition of the media landscape may mirror the digital transition of the retail sector in the coming years. Legacy companies like Walmart Inc WMT that were willing to endure the pain of heavy investing to transform their businesses are now reaping the long-term rewards of those investments, while others like Sears and JC Penney that were slow to adapt have fallen by the wayside.

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

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