Analyst Tom Eagan of Telsey Advisory Group released a new report saying he’s “cautiously optimistic” about the media and entertainment business going into second quarter earnings season.
He picks CBS, 21st Century Fox, Time Warner and Viacom as stocks that will outperform.
The media sector had “healthy fundamentals and reasonable valuations,” Eagan says.
Eagan points to the ad market as looking healthy. “We expect the strong scatter market will continue into upfront negotiations and 3Q spending,” Eagan said in a report Monday. “While C7 ratings will likely remain under pressure, the 1H17 move to cross platform measurement should help comps.”
At the same time, valuations of media stocks are 25% below the S&P 500. “Sentiment for the sector is undeservedly low,” he said and should improve as cross-platform measurement kicks in and sub losses moderate.
On Viacom, Eagan says he expects the shakeup at National Amusements and controlling shareholder Sumner Redstone’s trust to continue.
“Should the trust replace CEO Philippe Dauman, we expect further gains at Viacom. June quarter results will be lackluster but we believe that this is already built into the lowered consensus estimate,” Eagan said.
Eagan also said he does not think the Redstone drama will lead to Viacom and CBS being merged.