This week, in our focus on the winning analysts in each industry category from our
Analyst Rankings -- Equity 2000
, we profile the top analysts tracking broadcasting and cable TV. Because our top two analysts in this sector are also the top two analysts in the movies and entertainment sector -- and since the stocks in these groups frequently overlap -- we will be covering their views on entertainment here as well. In consequence, there will be no profile of movies and entertainment next week. The next sector we'll profile is home improvement retail, which appears on Dec. 12. (Our last focus was on
wireless telecom services.)
Morgan Stanley Dean Witter's
Richard Bilotti is the first-place winner in both cable and broadcasting and in movies and entertainment. Likewise,
Jessica Reif Cohen takes second-place honors in both groups. (
Salomon Smith Barney's
Niraj Gupta, the third-place winner in broadcasting, was not available for an interview, and neither was
Richard Simon, No. 3 in movies and entertainment.)
Our two top-ranked analysts are bullish on the cable TV sector. As the industry rapidly expands its offerings to include data and voice options in addition to video, it is also facing increased competition from direct broadcast satellite TV and the telecom companies. Some of the industry's major players have underperformed the
S&P 500 index
by 20 and even 30 percentage points. But Reif Cohen believes investor's concerns are overdone. She is confident of the cable platform's superiority over its competitors and is equally positive about the sector's fundamentals. Her top pick for the group is
Bilotti acknowledges the threat from competition as well but is pleased with the cable companies' response to it: They have sped up the release of new programs and services rather than cutting prices. And with industry consolidation most likely over for the foreseeable future, he believes companies can -- and should -- now focus on internal growth strategies.
Looking at television advertising, Bilotti anticipates that recent strong growth will gradually slow, making a soft landing, while Reif Cohen's view is not as rosy. Although growth has been strong, she notes that an economic slowdown could cause advertisers to cut budgets drastically. The analyst downgraded
on Nov. 10 after both companies warned of weaker advertising sales. Cable stations would feel this less than would the networks, since their revenues depend less on advertising.
Still, taking into account its price and citing a number of strong drivers of future growth, Reif Cohen picks Fox Entertainment as her favorite name among broadcasting stocks (in spite of her downgrade). She warns of the possibility of a Hollywood shutdown, which, she warns, could drive the broadcast audience to alternative cable programming.
In the movies and entertainment arena, Reif Cohen says that the film industry has been subject to some mixed blessings of late: Though box-office receipts this year trail last year's figures, they no longer make up as high a percentage of film industry profits as they once did. The big-screen industry has seen an increasing portion of its revenues come from the small-screen industry, which in the near term is expected to pay a record amount in licensing fees for recent film releases. Reif Cohen's favorite pick in the entertainment sector is media empire
. She notes a number of positive synergies from its merger with
Bilotti focuses on determining the cyclical and secular exposures of entertainment conglomerates to determine which is best positioned to weather an economic downturn. Those with the least amount of cyclical business should fare best. In addtion, he says, developing a clear new media plan is vital to ensuring a company's future growth.
Broadcasting & Cable TV