Many media stocks are running out of gas

But a few are still worth buying.

By Jonathan Berr Sep 19, 2012 2:17PM
 Watching television, copyright Frare, Davis Photography, Brand X, CorbisShares of  Comcast (CMCSA), Walt Disney (DIS) Time Warner (TWX), CBS (CBS), News Corp. (NWSA), and Viacom (VIA.B) are up by double-digit percentages despite worries that a slowdown in the economy could depress advertising sales and that a lackluster summer box office hurt earnings. These companies are showing resilience, however, because such concerns are already priced into their stocks.

Comcast is perhaps the most surprising performer, gaining more than 47% since the start of the year. During the past quarter, the Philadelphia company posted better-than-expected results as gains in broadband and phone customers offset losses in video. NBC Universal, though, continued to produce mediocre results and probably will continue to do so for some time.  

Wall Street sees better times ahead for the nation's largest cable company. The average 52-week price target on Comcast is $38, about 9% above where it currently trades.  Comcast trades at a price-to-earnings (P/E) ratio of 17.52, near its five-year low, according to Reuters. Revenue in the current quarter is expected to rise by an eye-popping 12%, which is reason enough to buy it.

Viacom  has managed to shrug off concerns about declining cable ratings, posting a 14% gain. The average 52-week price target on the stock is $54.65, about 5% higher than where it currently trades. Its P/E multiple of 12.55 is at a discount to its peers. The stock, though, is cheap for a reason. Analysts forecast a 15.1% decline in revenue during the current quarter.

Corporate sibling CBS has gained almost 35% this year as it benefited from a rise in political advertising tied to the presidential election and strong ratings at its flagship broadcast network. The 52-week price target on the stock is $39.77, about 9% higher than where it currently trades. It has a P/E multiple of 16.45, below its five-year high.   Revenue in the current quarter is expected to rise 4.7%. The stock is worth buying.

Walt Disney has also been on the move, gaining nearly 40% this year, as Wall Street cheered the strong performance at the company's  theme parks and studio business. But the house of Mickey may be running out of gas. The average 52-week price target on the stock is $54.08, about 3% higher than where it currently trades. Disney's shares also are pricey, trading at a P/E multiple of 17.16, a five-year high, according to Reuters. The company usually manages to surprise investors in a good way. However, investors should hold off on buying the stock until a pullback.

Shares of News Corp. have surged about 40% this year as investors cheered the company's decision to spin off its controversy-plagued newspaper business. The stock has gotten pricey, trading at a multiple of 55.67, a five-year high. The average 52-week price target on the parent company of the Fox News Channel is $26.10, about 5% higher than where it currently trades. Investors should steer clear of the stock until the issue of CEO Rupert Murdoch's successor is resolved.  

Time Warner, the largest media conglomerate, may have gotten ahead of itself. The stock, which is up about 25% this year, recently traded at $45.49, above its 52-week price target. Dismal CNN ratings and lackluster performance at its Time Inc. magazine unit will continue to depress the share price. Its 17.52 multiple is trading well under its five-year high. Revenue growth, which is expected to fall 2.2% in the current quarter, is forecast to be lackluster for some time to come. 

Jonathan Berr is long CBS and contributes to Follow him on Twitter@jdberr.



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