Many economists and investors expect the economy to slow as the Federal Reserve continues to raise interest rates.
This would likely trigger a slowdown in advertising.
Wells Fargo analysts looked at how such a drop would affect about 20 stocks with significant advertising revenue among media/entertainment companies, ad agencies, TV broadcasters, cable TV operators and outdoor advertisers.
A 10% drop from analysts’ advertising revenue estimates for 2022-24 could result in “risk of a 9% to 10% earnings decline for the most advertising names” in Wells Fargo coverage, the analysts said. analysts.
· Omnicom Group (OMC) – Get the Omnicom Group Inc reportan advertising/marketing company;
· Outer clean channel (CCO) – Get the Clear Channel Outdoor Holdings Inc reportan outdoor advertising company;
· iHeartMedia (IHRTQ) owner of a radio station;
· interpublic (IPG) – Get the report from Interpublic Group of Companies, Inc., an advertising/marketing company; and
· Audacity (USD) owner of a radio station.
For video streaming platform Roku (ROKU) – Get the Class A report from Roku, Inc.earnings before interest, taxes, depreciation and amortization could fall 45%, in part due to its high operating expenses this year, analysts said.
They also listed their favorite names for this “delicate time.”
They noted that these were tactical recommendations and might not align with their longer-term investment theories.
Either way, frontrunners benefit from lower ad exposure and free cash flow and strong balance sheets, analysts said. Companies include:
· SiriusXM (SIRI) – Get the report from Sirius XM Holdings, Inc.the radio broadcaster;
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· World wrestling entertainment (WWE) – Get the Class A report from World Wrestling Entertainment, Inc.the wrestling event operator;
· Imax (IMAX) – Get the IMAX Company Report, the theatre/film company; and
· Nexstar Media (NXST) – Get the Class A report from Nexstar Media Group, Inc.the largest owner of local television stations in the country.
Morningstar’s take on Sirius
Morningstar analyst Neil Macker likes the company, crediting it with a narrow moat.
He puts the fair value of the stock at $8.25, down from a recent quote of $6.34.
“Sirius XM posted a slightly stronger than expected start to a challenging 2022 as revenue exceeded and EBITDA met FactSet consensus expectations,” he wrote in a commentary.
“The SiriusXM service lost 25,000 self-paid customers in the quarter, consistent with the low annual forecast of just 500,000 net additions, which management reiterated.”
The loss stems from limited auto inventory, Macker said.
“Management continues to expect most of the year’s net additions to occur in the second half and has seen some improvement in the paid subscriber funnel.”
Morningstar’s take on Imax
Morningstar analyst Neil Macker is bullish on the company, crediting it with a narrow moat.
He puts the stock’s fair value at $22, down from a recent listing of $15.96.
“Imax had a decent start to 2022, with first-quarter box office up 57% year-over-year, but lagging well behind the first quarter of 2019,” Macker wrote in a comment.
“The box office in China was actually down from 2020…Furthermore, the war in Ukraine shut down the company’s Russian screens, which average 3% of Imax’s box office receipts .”
“We still believe that bigger movie slates and more blockbusters should help Imax return closer to 2019 box office receipts in 2022, excluding China,” Macker said.