Paul LaMonica Commentary:
Media Biz by Paul R. La Monica Column archive
Media stocks ready for their close-up
Investors have taken a shine to Walt Disney and News Corp. As all the major media firms get set to report their latest results, will the rest of the sector perk up?
By Paul R. La Monica, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) – This year has been a better one for big media stocks than 2005. Of course, that's not saying much.

Last year, all the major media stocks finished with double-digit percentage losses due largely to concerns about declining movie attendance and competitive pressures posed by emerging technologies, such as digital video recorders, satellite radio and the Internet.

Investors appear to approve of acquisitions made by News Corp and Disney lately...
Investors appear to approve of acquisitions made by News Corp and Disney lately...
...but Wall Street is skeptical of plans that Viacom and Time Warner are making to boost their growth.
...but Wall Street is skeptical of plans that Viacom and Time Warner are making to boost their growth.
INVESTOR RESEARCH CENTER INVESTOR RESEARCH CENTER upgrades & downgrades earnings & warnings public offerings INVESTOR RESEARCH CENTER INVESTOR RESEARCH CENTER
Lights, camera, growth?
A breakdown of valuations and earnings prospects for media firms.
Company P/E 06 Est. EPS Gr. LT Est. EPS Gr. 
CBS 15.2 6% 10% 
Disney 17.6 22% 13% 
News Corp 18.7 20% 16% 
Time Warner 19.7 10% 13% 
Viacom 20.1 15% 18% 
 * all data based on calendar 2006 estimates as of 5/1/06
 Source:  Thomson/Baseline
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But this year, Wall Street has started to favor companies that they think are making smart strategic moves. Shares of Walt Disney and News Corp have both experienced a nice pop while Time Warner and Viacom have continued to struggle.

"Investors are rewarding media companies with a growth strategy. News Corp. and Disney management have continued to position the companies for growth," said Aryeh Bourkoff, an analyst with UBS.

Then there's Univision. The Spanish-language broadcaster's stock has skyrocketed since the company announced in February that it was putting itself up for sale.

With all of these firms set to report their latest quarterly earnings in the coming week, it's time to take a closer look at what Wall Street will be watching out for.

Time Warner: Activist shareholder Carl Icahn may have called off the Lazard attack dogs and is no longer seeking a breakup of the company. But shareholders of Time Warner (Research) still don't have much to be thrilled about.

The stock has been flat this year, despite agreeing to boost its share buyback program to $20 billion in February. It has underperformed mainstream media rivals such as Disney and News Corp., as well as cable kingpin Comcast (Research). (Time Warner also owns CNNMoney.com.)

The company is expected to post decent numbers when it reports first-quarter results Wednesday May 3, with sales projected to grow 4 percent to $10.9 billion, and earnings expected to rise 11 percent to 20 cents a share.

What investors will be most interested in is seeing if strength in online advertising helps to soften the blow of continued subscriber losses at the company's AOL unit and if the company's cable business was able to report robust growth in high-speed Internet access and digital phone service users.

Comcast did that last week and was cheered by Wall Street. Cable accounted for more than a third of Time Warner's overall operating profits (before amortization and depreciation) last year.

Walt Disney: The Mouse has momentum on its side. ABC is clicking and investors are excited about the fact that Disney (Research) is buying its longtime animated studio partner Pixar. As a result, Disney is the best performing big media stock this year; shares are up 15 percent.

Results for this particular period, Disney's fiscal second quarter, are expected to be mixed, with analysts projecting earnings of 30 cents a share, a decline from last year, and sales of $8.2 billion, up 4 percent from last year.

But it is worth noting that Disney has surpassed earnings estimates by a wide margin for the past three quarters. And looking ahead, the company is likely to have a big summer at the box office thanks to the release of Pixar's latest film "Cars," as well as the sequel to "Pirates of the Caribbean." In fact, UBS' Bourkoff thinks that a strong summer slate of movies could help all major media companies.

Analysts are likely to question Disney CEO Bob Iger about the company's plans to offer several of its hit ABC shows online for free (with commercials that cannot be fast-forwarded) and whether or not this will help Disney cash in on growing demand for online advertising. Disney will report its results on May 9.

News Corp: Youth rules! News Corp. (Research) has attracted arguably the most buzz of major media companies during the past year thanks to several savvy Internet acquisitions, most notably MySpace, the popular social networking site for teens and young adults.

The company's Fox TV division is also doing well thanks to the ratings powerhouse that is "American Idol," another popular show with the younger demographic that advertisers highly lust after.

When the company reports its fiscal third-quarter earnings on May 10, analysts will be eager to hear about just how rapidly the company's online operations are growing, whether they are profitable and if News Corp. has plans for even more Internet media acquisitions.

News Corp.'s stock is up 10 percent so far this year and of the major media firms, it is expected to post the strongest growth in the quarter, with analysts predicting an earnings increase of 54 percent, to 20 cents per share. Sales are forecast at $6.3 billion, up 4 percent from a year ago.

Viacom: The media conglomerate was supposed to benefit from its split from its slower growth sibling CBS (Research) earlier this year. But so far that hasn't been the case.

Shares of the "new" Viacom (Research), which owns Paramount, MTV and Nickelodeon, are down nearly 5 percent this year. The company, which will report its first-quarter results on May 11, is expected to post a profit of 40 cents per share and sales of $2.93 billion.

For the full year, analysts are forecasting sales growth of 10 percent from a year ago and earnings growth of 15 percent. That's a bit below the expected growth rates of Disney and News Corp.

But Viacom, like News Corp. and Disney, has also taken steps to increase its presence online. It announced a deal last week to buy online gaming company Xfire.

Analysts will be interested in hearing more about Viacom's online operations as well as how plans to turnaround the Paramount movie studio, which lately has been starved for hits, are faring. Viacom bought DreamWorks SKG last year to bolster its film business.

Univision: One interesting subplot to the latest round of earnings reports is the fate of Univision. The company will report its first-quarter results on May 4 but it seems safe to say that investors are more interested in hearing about what's going on with bids for the company.

CBS and Disney are said to be considering making offers for the company, as is Mexican media firm Grupo Televisa. But it's likely that analysts will also ask Time Warner and News Corp. if they are interested in the company...and with good reason.

Thanks to its focus on an extremely hot market, Univision's earnings are expected to increase 24 percent this year and at about a 19 percent rate annually, on average, for the next few years. This is a higher growth forecast than any of the other major media firms.

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UBS's Bourkoff, or a member of his team or one of his family members owns shares of Comcast and Disney. UBS has received compensation from Comcast, Disney, Viacom and Time Warner for banking and non-securities-related services.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.