Broadcasters may be primarily focused on the advertising woes they face every day. But they are not alone. The media analyst team at Wachovia Capital Markets is out with an equity research overview across all types of media. They didn’t find much to be encouraged about.
“Local media advertising continues to flounder, likely accelerating to the downside towards the end of the second quarter of 2008,” the Wachovia analysts told clients. “The broader industry fundamentals continue to overshadow ‘easy’ comps driving ad declines to the worst levels in years. We expect similar trends for the foreseeable future, further pressuring already depressed equity values, as concerns related to sustainability of business models multiply. We remain cautious on media as a whole and are particularly negative on the newspaper and yellow pages industries.”
To the extent that they do see a bright spot, it is ad agencies. “We expect both Interpublic Group and Omnicom Group to meet or beat consensus estimates, and reiterate the cautious tone on the ad environment. While the clear concern remains ’09, we continue to expect the group to outperform,” the Wachovia analysts said. It has the sector ranked “Overweight” for investors.
What about broadcasting?
“Radio continues to suffer a one-two punch with secular concerns aggravated by a deteriorating economy. We believe those most at risk of missing Q2 and Q3 estimates are the large market groups (Radio One, CBS, Citadel), while those with small market concentration (Cumulus, Saga) should fare better,” they wrote.
As for TV: “With auto manufacturers/dealers suffering their own secular declines, core advertising remains weak. Political & Olympic spending may not be enough given high expectations. Plus, TV stocks typically don’t fare well in the second half of an even-numbered year. We believe most at risk is Hearst-Argyle, due to mgt’s lack of guidance, while LIN has upside potential related to retrans,” the Wachovia team said.
Both the radio and television sectors are rated “Market Weight.”
Newspapers and yellow pages are rated “Underweight.” The Wachovia team says Gannett and New York Times Company are the most likely to miss their Q2 targets (Gannett reports results tomorrow), but they think estimates for the second half of 2008 and for 2009 will likely be lowered again on Wall Street for all newspaper companies. With the local advertising environment deteriorating, the Wachovia team already has low expectations for yellow pages companies and predicts that the Wall Street consensus will move lower toward where they already are.
Calling outdoor advertising “fundamentally sound,” the Wachovia analysts still worry that those companies most dependent on local advertising, like Lamar, are most at risk. Outdoor is rated “Market Weight.”