Street sees biz stox stuck in a stupor
NEW YORK — Entertainment investors are hoping for a happy new year on Wall Street after one of the worst years in memory, but chances for an upturn in entertainment stocks are dependent on debt-reducing moves at companies like Time Warner Inc. and Viacom Inc., analysts say.
And while the prospects for some dramatic asset sales remain highly uncertain, at least no one thinks the entertainment sector’s performance on the market can get any worse. The broader market sold off Tuesday, finishing down 101.10 points to 6448.27 on the Dow Jones Industrial Average, but that was still up 24.5% for the year.
In contrast, most entertainment stocks finished 1996 lower than where they started. Only Walt Disney Co. and Universal Pictures’ parent Seagram Co. made any gains, and those were well below the rest of the market.
“It better get better. This has got to be one of the worst performing sectors in the market,” said Ellen Gibbs, a principal with money manager CRI Media Partners.
Disney closed the year at $69.62, up 14% on where it started 1996, while Seagram rose 11% to a close of $38.87. In contrast, Viacom fell 26% from its opening level of $47.25, closing at $34.87, Time Warner inched down 1.6% to $37.50 and News Corp fell 4.5% to $20.87.
Even cable network companies, which many see as the fastest-growing segment in the industry, lost ground. Gaylord Entertainment dropped 15% and Intl. Family Entertainment fell 12%. Cable operators plunged heavily with the bellwether stock, Tele-Communications Inc., plummeting 37% to Tuesday’s close of $13.25.
Most of the stocks were hurt by investor unhappiness with high debt levels, disappointing earnings and unfocused acquisitions. Now major institutional investors are pushing companies to streamline by selling off non-core assets to reduce debt and some companies, such as Viacom and Time Warner, are promising to do so. The question is when the promises will be kept.
“We are still living with the problems of consolidation where most of these big deals didn’t make any sense and it will take a while for them to be sorted out,” said Montgomery Securities analyst John Tinker. He says that “by definition (the market) can’t be worse” in 1997 but he is neutral on all the majors except Time Warner, which he says has disappointed for so long it has to be ripe for a turnaround.
Even more bearish is veteran entertainment analyst Harold Vogel of Cowen & Co. He says, “I don’t see much change in tone or growth rate. I think we have basically more of the same.”
Vogel notes that he sees no sign of solution to the “structural problems” that have underpinned the market’s poor performance last year. That, of course, could change with a deal being struck on an asset sale.
But several Wall Streeters express nervousness at the lack of any news on Time Warner’s negotiations with its telco partner US West on a restructuring of Time Warner’s massive cable holdings, and at Viacom’s failure to sell any major asset.
“There is always hope,” said Brian Stansky, an analyst with money managers T. Rowe Price. He added that “there are lots of question marks out there” and said the sector should be judged on a case-by-case basis, relating to re-structuring plans or business issues confronting each of the companies.
One of the few bulls about the sector is State Street Research analyst Larry Haverty. “Other things being equal, the lower a stock trades, the more attractive it is. To me, looking hard at this group relative to other groups, it looks attractive,” he says.
Haverty noted that cable stocks, pummeled more than most in the past year, should get some respite as the competitive threat from satellite-TV operators and telcos recedes.
Indeed, recent weeks have seen cablers like TCI pulling back from their commitment to telephony, and telcos abandoning programming services like Tele-TV. That has helped selected cabler stocks like Cox Communications and Comcast.
The other factor that will influence stock prices will be earnings. Viacom’s stock price was hurt in 1996 largely because the company disappointed in its cash flow growth. CRI’s Gibbs said she was hoping the companies fulfill promises to show better cash flow growth this year.