BofA's Media Downgrade Spree: ViacomCBS, Discovery, iHeartMedia

The media sector is an "industry in transition" and several legacy media giants aren't ideally positioned moving forward, according to BofA Securities.

The Analyst: Jessica Reif Ehrlich downgraded the following media names:

ViacomCBS Inc VIAC from Neutral to Underperform, price target lifted from $30 to $32.

Discovery Communications Inc. DISCA downgraded from Neutral to Underperform, price target lowered from $32 to $25.

IHeartMedia Inc IHRT downgraded from Neutral to Underperform, price target lowered from $12 to $10.

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The Viacom Downgrade: The new bearish case for Viacom's stock is based on:

• The resumption of scripted content will negatively impact free cash flow.
• Lack of clarity on incremental marketing, tech, and content spend related to the 2021 Paramount+ rebrand.
• Viacom may be losing the streaming video race as other major studios accelerated their streaming ambitions.
• Continued "overhang" from the National Football League.
• Delayed theatrical releases.

The Discovery Downgrade The case against Discovery's stock is based on:

• Unclear signs of how successful Discovery+ will be and what impact a streaming platform will have on linear TV viewership.
• Higher competition adds pressure to Discovery to create "must-have" content.
• Competition with substitute products like YouTube.
• Long-term streaming EBITDA margin estimates of around 20% are "significantly lower" versus cable networks at more than 40%.

The IHeart Downgrade: IHeart media boasts a "healthy" liquidity position, manageable debt levels, and potential benefits from Liberty Media increases its stake up to 50%, the analyst wrote. However, investors may want to avoid the stock given:

• Low visibility on terrestrial radio advertising trends.
• An "elongated" recovery timeframe.
• No near-term compelling catalysts.
• High leverage of10 times 2020 net debt/TTM EBITDA.

Price Action: Shares of ViacomCBS were trading lower by 3.3% at $35, while shares of Discovery were down 2.5% at $28.02 and shares of iHeartMedia were lower by 4.5% at $12.08.