Cowen's Doug Creutz also lowers stock price targets, citing "the impact of heavy social-distancing measures and the impact of the resulting recession that we expect."
Cowen analyst Doug Creutz on Monday cut his earnings estimates for the entertainment giants he covers, including the Walt Disney Co. and ViacomCBS, through 2022 due to the new coronavirus, an expected recession and their longer-term fallout and lowered his stock price targets.
"We are lowering estimates and price targets across the board for our media companies today to reflect the impact of heavy social-distancing measures and the impact of the resulting recession that we expect," which could last "at least" until the fourth quarter, he wrote. "We expect TV advertising to suffer a significant and relatively permanent decline as we expect digital's share take to accelerate." He added that "a key assumption we are making is that the recession drives a permanent step-down in TV advertising" that will affect financials into 2022 and possibly beyond.
Creutz highlighted that theme parks were "in for heavy damage" and would "likely take several years to recover," while "film results will see some impact from both the closure of cinemas and the shutdown of most film production, though we expect that pain to be spread out over several years due to the nature of film accounting."
Meanwhile, with TV production also suffering disruption, "we expect a bit of revenue pressure there as well," the analyst noted. "The one area we expect to remain relatively healthy is affiliate and subscription fees," although he added that "there is some risk of incremental cord-cutting...given pressure on household budgets."
Creutz said he was sticking to his "outperform" ratings on shares of Disney and Lionsgate despite cutting his price targets from $159 to $101 and from $15 to $14, respectively. Disney will "suffer a fairly severe haircut to earnings as a result of its parks exposure," but "we still expect Disney shares to relatively benefit from its perception as a high-quality asset," he wrote. "Lionsgate has by far the least exposure to COVID-19 related pressure of all our media names, so we actually like it
relatively more here given that it has declined roughly as much as the rest of the space."
Meanwhile, Creutz reduced his price targets for ViacomCBS from $25 to $17, for Fox Corp. from $33 to $21, for Discovery from $25 to $18 and for AMC Networks from $33 to $24.
Creutz cut his Disney earnings per share estimate for the current fiscal year, ending in September, by 49 percent, his operating income forecast by 44 percent and his revenue projection by 14 percent. "In the near-term, Disney is taking by far the biggest earnings hit due to their park exposure," he explained, predicting that the impact would be "continuing to be meaningful out to fiscal year 2022."
He trimmed his earnings per share, operating income and revenue estimates for fiscal year 2021 by 38, 34 and 12 percent, respectively. For fiscal 2022, Creutz's earnings per share, operating income and revenue estimates are down by 26, 25 and 9 percent, respectively. But he lauded the company's balance sheet, saying: "With $6.1 billion in cash as of the end of the fiscal first quarter, and another $6 billion raised by a debt offering last week, we expect Disney to be able to ride out the current crisis."
About ViacomCBS, Creutz said that it has "incremental exposure through its Paramount film and TV studio, but we see the impacts there as being relatively minor compared to our expectation for significant pressure on advertising revenue" at its networks business.
He cut his ViacomCBS earnings per share, operating income before interest, taxes, depreciation and amortization, as well as revenue estimates for 2020 by 19, 14 and 5 percent, respectively. For 2021, he reduced his forecasts by 23, 18and 5 percent, respectively, followed by 2022 cuts of 21, 16 and 4.5 percent.
For Discovery and Fox Corp., Creutz made the same percentage cuts to his financial estimates over the three-year period, reducing his earnings per share forecasts by 16 percent in 2020, 22 percent in 2021 and 22 percent in 2022. His operating income before interest, taxes, depreciation and amortization forecast, meanwhile, dropped by 12 percent, 16 percent and 16 percent for those years, respectively. And he cut his Discovery and Fox revenue expectations by 5 percent this year, 7 percent next and 6 percent in 2022.
The analyst's AMC Networks earnings per share estimates came down 15, 19 and 18 percent for 2020, 2021 and 2022, respectively. His adjusted operating income forecasts fell by 10, 13 and 13 percent, while his revenue estimates are down 3 percent for 2020, 4 percent for 2021 and 4 percent in 2022.
Finally, Creutz cut his Lionsgate earnings per share estimates by less than 2 percent for the new fiscal year that ends in March 2021, 21 percent for the following year and 16 percent for the year after that. His operating income before interest, taxes, depreciation and amortization forecasts moved lower by 0.5, 9 and 9 percent, respectively. And his revenue estimates are down by 0.2, 7 and 2 percent.
