This week starts off with analyst Michael Nathanson of Nomura Securities downgrading the entire U.S. media sector and CBS, in particular from a Bullish rating to Neutral.
The move comes after two weeks of earnings announcements and conference calls talking about individual companies’ performance, industry trends and the economic environment.
Nathanson says he expects 2012 earnings to be strong, but predicts that they will decelerate sharply in 2013.
“Our downgrade of the group and CBS is not rooted in the belief that industry drivers are about to fall off a cliff,” he wrote in a research note. “Rather, we think that the upside earnings surprises that drove CBS and the broader sector are going to be less likely in the year ahead.”
For one thing, Nathanson says that the advertising trends have been slowing, coming in below forecasts for the past two quarters. “We are worried that national scatter trends, a major source of upside, have cooled and will become even more challenging in the first quarter,” he writes.
And while the money from Netflix, Amazon and other streamers that boosted earnings continues to flow, “We are concerned that the scope for more near-term digital dollars is limited, the increase in Web options may cannibalize some level of viewing, and that traditional syndicated TV buyers will be less interested in library content going forward,” he says.
Nathanson says he continues to recommend buying Walt Disney Co., News Corp. and Viacom. He thinks Disney and News Corp. still have the potential for upside earnings surprises because of retrans and reverse comp., strong cable content franchises and the potential for further stock buybacks or dividends. Viacom, which announced a $10 billion share buyback last week, is now simply a value play on a massive equity shrink,” he says.