Credit Suisse First Boston picked a rather inauspicious time to recommence coverage of the “Big 4” entertainment companies Tuesday, initiating its research of the sector with an overweight rating, with cautious optimism that media shares have finally hit bottom.
CSFB had largely ignored the platter of media and entertainment stocks since the bank’s star analyst Laura Martin left to head up Vivendi Universal’s investor relations team last year. The bank, with its new media point man, Bill Drewry, kicked off coverage of media giants AOL Time Warner, Disney, Fox and Viacom with the latter three all getting “buy” ratings. (AOL TW, a CSFB banking client, went unrated.)
Separately, MGM received a “hold” rating.
Viacom garnered the top pick in the media portfolio with a “strong buy.”
Drewry, CSFB’s former publishing analyst, was fairly restrained in his initial report on the “Big 4” entertainment names, which he notes under-performed an already weak S&P 500 on aggregate by 20% year to date.
Still, Drewry concluded that after the high EBITDA trading multiples of the 1997-2000 era, media stock multiples are now back to reality. He believes profit growth should return in 2003 and that Viacom should be the biggest beneficiary with a 12-month price target of $52, compared with today’s $38.86. He believes that most of the bad news in the media stocks is already embedded in the share prices, making companies like Disney (12 month target of $21) and Fox ($29) good buys.
“Despite all the turmoil to date, we believe that the excess has been mostly wrung out of the stocks,” Drewry wrote.