NEW YORK — With the broader stock market in full throttle, Time Warner Inc. and Walt Disney Co. both hit new highs Monday in the latest sign that investors are flocking back to Hollywood — or at least parts of it.
On a day the Dow Jones Industrial Average rose 123.22 points to a new high of 7,292.75, Time Warner hit a high of $46.25 — the highest point the stock has reached since the media giant was formed from Time Inc.’s acquisition of Warner Communications in 1990 — although TW stock eased back to close at $45.37, up $1.50 on the day.
At the same time, Walt Disney Co. hit a new high of $84.50, up $2.25 on the day. Other stocks to move include some long-neglected cablers such as Cox Communications, up $1.12 to $21.87, and Comcast Corp. up 12¢ to $16.62.
But the entertainment sector’s positive performance was still selective, leaving out both Rupert Murdoch’s News Corp. and Viacom Inc. News Corp. dropped 12¢ to $18.62, while Viacom inched up 12¢ to $28.93.
Both News and Viacom have been savaged in recent months, as investors have reacted to Murdoch’s unrestrained acquisitions and apparent disdain for investors and Viacom’s failure to turn around its Blockbuster video chain.
In contrast, Time Warner is taking steps to reduce its debt and clean up its unwieldy corporate structure as well as reporting strong earnings growth.
Disney, likewise, had a strong first quarter and has sold its newspaper businesses picked up in the ABC acquisition — although ABC itself is performing poorly.
Time Warner and Disney are “the only clean stories out there. The other ones all have some mud on them,” Schroder Wertheim analyst David Londoner said.
Time Warner’s annual shareholders meeting is scheduled for Thursday, and TW chairman Gerald Levin will face a much happier crowd than in years past when the stock was stagnant. For the first time, Levin will be able to brag that Time Warner stock has outpaced the broader market since Jan. 1 — TW stock has risen 21% over that period, while the Dow Jones has risen 13%.
Time Warner stock has risen so much, it is encountering some stock downgrades from analysts who think it may be getting overpriced.
Montgomery Securities analyst John Tinker put the stock on a hold a few weeks ago, mainly out of concern for how Time Warner would emerge from a restructuring of its entertainment partnership with telco US West.
Cowen & Co. analyst Harold Vogel said TW stock is “getting close” to where he will downgrade it. “I still think it’s going higher, a couple of points at least,” Vogel said Monday.
But the increasing confidence that Time Warner will do a deal with US West, expected to be some time over the summer, is cited by many analysts as one of the reasons for the stock’s strength. The partnership with the telco has complicated Time Warner’s structure, and the forthcoming deal will transfer two of TW’s key content assets — Warner Bros. and HBO — back into Time Warner itself from the partnership.
Time Warner’s momentum on Wall Street is largely driven by its operational strength, Lehman Bros. analyst Larry Petrella said. The company’s earnings, both in its cable systems and in most of its content areas, have been as strong as or ahead of its competitors in the past few quarters, and that is expected to continue.
Mouse brand name
Disney’s situation is a little different. The Mouse House’s brand name gives it staying power with investors that other companies can’t match, money managers say. And it is one of the 30 stocks that make up the Dow Jones Industrial Average, so it tends to get snapped up when institutional investors want to participate in a market surge.
Disney’s stock has risen 21% since the start of the year, and analysts also question how much further it can go.