Broadcasters May Feel the Pinch
By Howard Choe
Earlier this week, we at S&P downgraded selected broadcasting stocks in light of a softer economic outlook. We lowered Clear Channel Communications (CCU ) from buy to hold, and Radio One (ROIA ) and Emmis Communications (EMMS ) from accumulate to hold.
And on Thursday, Aug. 8, we downgraded Univision (UVN ) from accumulate to hold based on the company's weaker outlook. The company reported second-quarter results that were on the low side of its projections. Univision also modestly lowered its outlook for the rest of 2002, citing a softer economy and startup costs. Growth in ad spending is at risk in light of mixed economic data, but we still think it's okay to hold this leader in Hispanic broadcasting.
Univision has plans to acquire Hispanic Broadcasting (HSP ) in a stock deal, so HSP currently trades in line with UVN shares. S&P believes the combination, coupled with other media assets, will provide attractive cross-platform selling opportunities to advertisers that are eager to target the fast-growing Hispanic population.
In addition, S&P lowered Hearst-Argyle Television (HTV ) to hold from accumulate based on a softer economic outlook.
Year-to-date through Aug. 2, the S&P Broadcasting & Cable TV index declined 43%, vs. a 24% fall for the S&P 1500 Super Composite index. Cable stocks, in particular, have been under increased investor scrutiny amid the collapse of highly-levered Adelphia Communications and the slowdown in subscriber growth.
Some of investors' concerns that have spilled over into the TV and broadcasting industry are related to accounting irregularities, high debt, corporate governance, and the degree of economic recovery.
With just modest gross domestic product growth in the second quarter and manufacturing weak, we believe advertisers are likely to ratchet down activity in anticipation of slower consumer spending. We are lowering our radio and TV ad growth projections to 3.5% from 4%.
We also believe that the performance of certain broadcasting stocks may be limited by investor concern over high debt and/or corporate governance issues.
Analyst Choe follows broadcasting stocks for Standard & Poor's