Bulling on USA nets

Analyst's rating boosts stock of Diller group

Shares of Barry Diller’s USA Networks popped higher Thursday as CIBC World Markets analyst Sharon Williams slapped a “strong buy” rating on the stock in a bullish report praising USA’s business mix, management and prospects.

Company stock rose 8.3% to close at $22.06. That’s up nicely from its 52-week low of $17 about a year ago but well off its high of $29 earlier this year. Williams attributed the decline partly to the planned AOL/Time Warner merger announced in January (following the Viacom/CBS combo last fall) that started investors wondering if USA will be able to compete against such giant congloms.

She thinks they will and values the stock at $31.

Word on the Street

Wall Street has also been wondering if the USA Network will lose its mainstay World Wrestling Federation program block to a deeper-pocketed group (like Viacom/CBS).

“Although we feel that USA could lose WWF,” Williams said, the company has fortified itself against programming price wars to some extent by focusing more on content creation.

She said the company’s Internet presence, a big part of USA’s strategy, is a plus.

“We believe USA Networks has a sharply focused and well-developed Internet strategy which positions it to capture enormous profits over the next several years — something few of the large entertainment conglomerates can yet claim,” she said. Its portfolio includes local guide CitySearch, Match.com, Hotel Reservation Network, MXG Media and Styleclick. Its Home Shopping Network and Ticketmaster, two powerful engines at the company, are both big online as well.

Cable TV retailer HSN provides 33% of USA’s total revenue and cash flow.

Sci Fi poised

Cable nets USA and the Sci Fi Channel make up 27% of revenue and a hefty 67% of cash flow. Sci Fi, Williams said, “is at the sweet spot of its life cycle,” poised for full distribution (an estimated 71 million subs in 2001), 50% advertising growth this year and a 26% compounded annual growth in the next three years. Studios USA has created several new series for the net, such as “Invisible Man.”

And Diller seems committed to keeping USA Films on the smaller side, with moderately budgeted pictures, which is how Wall Street likes its movie studios.

With USA leading the pack, showbiz stocks were generally upbeat in another volatile day of trading.

Viacom rose 6.8% to $55.94. Time Warner gained 3.6% to close at $94.75. News Corp., Seagam, Walt Disney and MGM also posted gains.

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