The move "primarily reflects our view that Fox is best positioned among peers in a weaker, but ultimately stable consumer environment," says Guggenheim's Michael Morris.
Guggenheim Securities analyst Michael Morris on Thursday upgraded his rating on Fox Corp.'s stock from "neutral" to "buy" and downgraded Walt Disney from "buy" to "neutral" in a report that updated his financial forecasts for entertainment industry companies "to better reflect the impact of COVID-19 behavioral changes on revenue drivers and additional diligence on key cost considerations."
He highlighted that Fox's primary immediate risk was from advertising exposure, estimating that about 43 percent of the company’s fiscal year 2020 revenue was from advertising. "That said, we view the company’s exposure to live news and late-season sports content (primarily the NFL, college football and post-season baseball) as relatively attractive compared to media peers," he said. "Any indications that the NFL season will be negatively impacted would likely weigh on investor sentiment."
Morris lowered his 12-month price target on Fox shares from $40 to $29, but said his upgrade to a "buy" rating "primarily reflects our view that Fox is best positioned among peers in a weaker, but ultimately stable consumer environment."
Meanwhile, he cut his Disney price target to $100 from $160, but highlighted that this was still a premium reflecting "both the quality of Disney’s asset base and our view of the value of the direct-to-consumer business, which is a drag on near-term financial results."
Morris noted that "Disney has been particularly hard hit by the pandemic, impacted across virtually every segment of the company," leading him to lower his revenue and operating profit estimates across all segments, with parks and resorts closures causing "the most significant changes."
Concluded the analyst: "Disney is a tremendously valuable collection of physical and intellectual property assets, and our long-term view of industry-leading value creation potential is unchanged. However, we also believe that investors are under-appreciating how long the parks and resorts business may be under pressure relative to prior expectations. As such, we see the company as more susceptible to downward estimate revisions than peers in a prolonged slowdown and less likely to see quick upward revisions in a recovery."
Among other updates, Morris also lowered his price target for ViacomCBS from $24 to $22.50, while maintaining his "buy" rating on the stock. He said he has "confidence in the company’s relative position (NFL exposure, large television and film production capabilities) ... offset by concern toward the company’s overall strategy of distribution across multiple internal and external platforms, which has yet to yield clear outperformance."
Morris on Thursday also cut his stock price target on Discovery from $27 to $19, while maintaining his "neutral" rating, and lowered his AMC Networks price target from $33.50 to $24, also maintaining his "neutral" rating.
