"After going through one of the worst earnings seasons we have ever had outside the Great Recession, it's time to re-assess our entire coverage universe as clearly both fundamentals and sentiment have changed," Marci Ryvicker of Wells Fargo Security wrote in her note downgrading the media sector from "overweight" to "market weight."
According to The Hollywood Reporter, the analyst says she likes pay TV distributors as terrestrial Internet is increasingly important, but most content providers are problematic, and she specifically downgraded CBS, Walt Disney and 21st Century Fox. She said she still likes Time Warner and to a lesser extent Comcast, though she's not bullish on the latter's NBCUniversal segment because of its cable networks.
Ryvicker says in her note that she and her team analyzed historical trading patterns for media companies and re-read all of the recent quarterly earnings reports and transcripts from the conference calls with management. "To be honest, this was really, really hard," she wrote.
She argues that the "diversified entertainment" sector does not have enough offerings that are considered "must-have" by the average consumer; that there is too much foreign-exchange risk; the sector lacks potential for positive catalysts; and that government regulation could pose problems.
All of the major media stocks have been trending down since early August when Disney reported its quarterly financials, and they all sunk lower Tuesday, as well: Disney and Viacom were each off 2 percent while Fox, Comcast and CBS were each down 1 percent. Time Warner was off fractionally.
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