Cable stocks took a beating Thursday after Sanford Bernstein media analyst Todd Juenger lowered his rating on The Walt Disney Co. and Time Warner Inc. to “market perform,” adding that heightened risk in the sector is calling for a new valuation framework.
The downgrade, coupled with a more than 358-point decline in the Dow Jones Industrial Average -- it's lowest level since last fall -- sent stocks reeling. The Dow closed at 16,990.69, down 358.04 points as investors concerned about growth prospects both domestically and internationally, headed for the exits. IN teh media space, Disney and Viacom felt the biggest hits – they closed down 6% and 6.3% respectively on Aug. 20, -- but virtually no cable programming or distribution stock was spared.
On the programming side, Discovery Communications fell 5.1% followed by Madison Square Garden Co. (-4.1%), Scripps Networks (-5%), Time Warner Inc. (-5%), CBS (-5.1%) and 21st Century Fox (-4.2%). On the distribution side, Dish Network was down 4.3%; Charter Communications fell 2.9%; Comcast was down 2.6%, Time Warner Cable was down 2% and Cable One dipped 1.8%. Cablevision Systems rounded out the sector, dipping 2.4% at the Thursday close.
The declines come soon after the media market meltdown earlier in the month, when every stock in the sector fell at least 10% at one point between Aug. 5 and Aug. 6.
According to Juenger, the market is now valuing media companies as “structurally impaired assets,” adding that in addition to a secular downturn in the TV advertising business, affiliate fees for cable networks “are being put at increased risk.”
Juenger added that he now believes the market is valuing the domestic TV business like satellite TV, publishing and AOL. Those companies, he said, all have declining subscriber fees and/or advertising displacement and trade at around 7 times cash flow.
Only 21st Century Fox managed to keep its “outperform” rating from the analyst – he said there is just too much growth over the next two years to ignore – but even that stock is approached with caution, as Juenger “worries that FY16 guidance is (again) at risk (already).”