The U.S. Court of Appeals for the District of Columbia Circuit on Tuesday struck down regulations that prevent companies from owning cable systems and broadcast stations in the same market. In addition, the court ordered the government to reconsider related rules that prevent television-station owners from controlling more than 35% of the national TV market.
S&P analyst William Donald sees the relaxation of station-ownership rules boosting demand for TV stations, which in turn should increase the appeal of the broadcasting sector. Another positive, he says, is the apparent bottoming of the advertising slump.
Donald upgraded his recommendations on Meredith Corp. (MDP), A.H. Belo (BLC), Gannett Co. (GCI), New York Times (NYT), Washington Post Co. (WPO) and Tribune Co. (TRB) to accumulate from hold. He also continues to like Hearst-Argyle Television (HTV), which is also rated accumulate. Many of these stocks rallied Wednesday on the court ruling news.
In addition, S&P kept its recommendations on cable stocks following the ruling. Because the ruling will allow companies to own cable systems and broadcast stations in same market, it should enable media giants like AOL Time Warner (AOL) to expand distribution, says S&P analyst Howard Choe. In particular, he sees Cablevision (CVC), Charter Communications (CHTR), Adelphia Communications (ADLAC), which are rated accumulate, as beneficiaries.