Bernstein Sees Increased Risk in Media; Disney (DIS) & Time Warner (TWX) Ratings Cut on New Valuation Framework

(Updated - August 20, 2015 8:51 AM EDT)

Bernstein analyst Todd Juenger downgraded Walt Disney (NYSE: DIS) and Time Warner (NYSE: TWX) from Outperform to Market Perform due to heightened risk following the recent media implosion. Juenger said affiliate fee revenue stream deserves a higher risk premium than it did before as the pay-tv sub decline accelerates.

Juenger explained, "... the market is now valuing U.S. ad-supported TV businesses as structurally impaired assets. We believe this is fair and warranted, because: a) we believe TV advertising is undeniably in secular decline; and b) affiliate fees are now also being put at increased risk."

"We can no longer advocate a view that DIS or TWX will Outperform the market over the next 12-months, so we must downgrade those names to Market-Perform. TWX was a very close call -our target price still calls for ~15% upside - but for a host of reasons we erred on the side of Market-Perform as opposed to continuing to advocate Outperform," continued the analyst.

Juenger added, "FOXA (Nasdaq: FOXA) is the only media name that sticks out as deserving conviction in 12-month Outperformance. There is simply too much growth in FY17-18 to keep the stock below ~$40. But even on that name we remain very cautious in the near-term (e.g. several quarters) on worries that FY16 guidance is (again) at risk (already), among other concerns. In other words, we expect the 12-month Outperformance to be concentrated at the end of the 12 months."

Speaking more broadly, Juenger said those who believe affiliate fees will prove resilient and advertising can be recaptured should buy media, and those who believe cord-cutting is accelerating should short all media stocks.

"We believe it is more complex. Different content characteristics and asset mixes deserve different valuations. Which should continue to create opportunities for investors."

For an analyst ratings summary and ratings history on Walt Disney click here. For more ratings news on Walt Disney click here.

Shares of Walt Disney closed at $106.45 yesterday.

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