Telsey Advisory Group media analyst Tom Eagan initiated coverage of the programming sector on Friday, placing an “outperform” rating on content stocks Time Warner, 21st Century Fox, Viacom and CBS.
In a 54-page note to clients, Eagan details his outlook for the sector, which is optimistic despite pressures from over-the-top video providers and skinny bundles.
Eagan prefers to value the sector on “fundamentals over fear,” adding that pay TV erosion concerns are overblown and that new measurement products could help provide additional upside to the stocks.
Eagan believes sector fundamentals are stabilizing, adding that CPMs gains and better scatter market pricing should translate into a healthy 2016 upfront and mid-single digit percentage growth for the year. In addition, Eagan anticipates affiliate fees for pay TV networks will increase in the mid-to-high-single digit percentages. Broadcasters will see even bigger gains from retransmission consent fees. Eagan estimated that retrans fees at CBS would rise 30% to $1 billion this year, with Fox experiencing an 18% gain.