Market malaise

Slump hits Disney, b'casters, exhibs hardest

NEW YORK — Entertainment majors have fared much better than some of the smaller showbiz stocks in the market selloff of the past few weeks, with exhib stocks and broadcasters suffering the worst.

Another day of selling in relatively light trading brought the Dow Jones Industrial Average down 41.97 points Friday to close the week at 7,640.25, down a total of 411 points or 5% for the week. The Dow has fallen 18% from its July 17 high.

The selloff has prompted a flight to quality, both in the broader market and in the showbiz sector. Indeed, Hollywood majors like Time Warner and Viacom remain closer to their 52-week highs than smaller stocks like exhibs and broadcasters.

Small-capitalization stocks have been on a downward trend for several months, as investors flocked to the safety of big companies. At the same time, exhibs have been suffering from worries about the medium-term outlook for the sector related to the rebuilding of circuits.

And broadcasters are hurt by worries about the impact on advertising-dependent businesses of a slowdown in the economy.

Time Warner finished the week at $83.31, down 3.6% for the week and 16% off its high for the year that was hit in mid-July. Viacom, which closed Friday at $57.12 (up from the previous Friday), is down 18% from its year-high.

Walt Disney Co., which is more vulnerable to economic downturns, is down 33% from its 52-week high and closed Friday at $28.25.

But stocks that have really suffered have been the exhibs. AMC Entertainment and Loews Cineplex Entertainment are both down 60% from their year highs, closing Friday at $11.81 and $7.87, respectively, while Carmike Cinema is down 42% from its year high and closed Friday at $19.75.

Ironically, the exhib stocks are hitting such low points just as their performance is beginning to show signs of improvement, after more than a year of earnings declines. Furman Selz analyst Stewart Halpern said Friday both Carmike and AMC would likely show higher earnings for the second half of 1998, reflecting the strong box office.

Halpern estimates Carmike’s net profit will rise 27% in the second half of this year while AMC’s net profit will be up marginally. But AMC is spending heavily on building new multiplexes, and on a cash flow basis — earnings before interest, taxes, depreciation and amortization — the growth is expected to be more significant, Halpern said.

The other sector to suffer from the selloff has been broadcasting, which has been flying high for much of the past two years.

Among the leaders of the selloff is Chancellor Media, expanding aggressively in radio, television and outdoor advertising, which dropped 23% last week to close Friday at $31.87. Since mid-July Chancellor has dropped 44%.

Clear Channel Communications is down 32% since mid-July, while Mel Karmazin’s CBS Corp. is down 29% from its high for the year reached last May. Having rallied 10 days ago on news that Karmazin planned to spin off its radio and outdoor businesses, CBS finished the week down 11% at $26.06.

Likewise Sinclair Broadcasting Group, which reactivated its stock buyback last week, is down 47% from its high reached earlier in the summer while Hearst Argyle Television is down 25%.

Wall Streeters are nervous about short-term prospects for the market, although some believe trading could be affected as investors on vacation in recent weeks come back to work.

Still, few believe the selling is over. “We are not quite done with it yet,” said Cowen & Co. analyst Harold Vogel.

Vogel said the mistake many investors make in a bear market is to look at a stock as cheap and not realize it will continue to go down.

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