Investors’ newfound enthusiasm for cable spilled over into the broader entertainment sector Tuesday in a rally encompassing all four major conglomerates, cablers and even broadcasters.
Time Warner hit an all-time high of $49.62, Walt Disney Co. rose 87¢ to $81.87, while both Viacom Inc. and News Corp. — out of favor with investors in recent months — inched up. CBS’ parent Westinghouse Electric Corp. hit a year-high of $21.87, while Cablevision Systems Corp. rose another $4.62 to $49 on top of a $9.75 gain Monday.
Monday’s cable rally was sparked by Microsoft Corp.’s $1 billion investment in Comcast Corp., and Tele-Communications Inc.’s sale of its New York-area cable systems to Cablevision, both of which reassured investors about cable’s prospects. TCI rose another 84¢ to $16.90, while Comcast closed up 87¢ to $22.25.
But the excitement spread into the rest of the entertainment sector Tuesday.
“I think that recent events with TCI and Comcast have brought a lot of investors back into media stocks with enthusiasm,” said Lehman Bros. analyst Tim Wallace.
“The stars are lining up,” Wallace said, citing both the continued strength in the economy and signs that interest rates are not rising further. Higher interest rates are bad news for companies with heavy debt, which applies to most entertainment companies.
Furman Selz analyst Fred Moran says the cable deals are positive for every entertainment company because both the Microsoft and the TCI-Cablevision deals are expected to accelerate investment in cable systems.
“All of these companies will benefit if cable systems get upgraded quicker … whether you are a distributor or a content producer,” Moran said.
The upgraded cable systems will have wider capacity to offer more channels. As most major entertainment companies have cable programming interests — ranging from Viacom’s MTV and Nickelodeon to Walt Disney’s interests in ESPN and E! Entertainment Television to News Corp.’s Fox sports joint venture and Fox News Channel — most will benefit from an increase in capacity.
The broadcasters are not missing out on the party. Westinghouse stock’s new high Tuesday capped a 28% gain in the three weeks since CBS radio czar Mel Karmazin took control of CBS’ TV station group, prompting Peter Lund’s resignation as CBS Television and Cable Group CEO.
The stock got a further push Monday from a strong buy recommendation issued by Wall Street firm Alex Brown, whose media conference Tuesday highlighted the growth prospects of a number of radio broadcasters.
With radio advertising running 8% higher for the year to date, according to Lehman’s Tim Wallace, radio stocks are also up — Evergreen Media rose $1.62 to $41 Tuesday. (Westinghouse’s CBS, of course, is the biggest radio broadcaster in addition to its television interests.)
The TV advertising market is not lagging, either, with the 9% growth in the broadcast primetime upfront market last week meeting expectations.
The cable stocks are likely to get another spur in coming days, when News Corp. announces the sale of its sat-TV business ASkyB to Primestar Partners. Primestar is a joint venture of cablers led by Time Warner and TCI, and News Corp.’s decision to join the group signals News Corp. chairman Rupert Murdoch won’t use his satellite TV business to try to compete with cable.
News Corp. is also expected to announce the $1.8 billion acquisition of Intl. Family Entertainment in coming days, confirming the value of cable networks, analysts say.
Expectations of the high price being paid by News Corp. have underwritten Viacom’s stock price rise, some Wall Streeters say.