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Sector Wrap: Entertainment media companies dip

October 7, 2011

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SAN FRANCISCO—Shares of entertainment media companies dipped Friday with the broader market, as a J.P. Morgan analyst began coverage of The Walt Disney Co., Time Warner Inc. and Viacom Inc. and Discovery Communications Inc.

In a note to clients, analyst Alexia Quadrani put an "Overweight" rating on Disney, Time Warner and Viacom and a "Neutral" rating on Discovery Communications. She cited factors like the endurance of cable TV, the strong position distributors of digital content find themselves in as consumers watch more and more movies and TV shows on the Web and expectations for healthy advertising growth in 2012.

"We are mindful of the change in the landscape for media consumption but not discouraged given the relatively steady subscriber rate of cable in this country (growing in many markets outside the U.S.), flattish attendance trends in theaters and increasingly high dollar amounts being reaped by content providers as the battle for third-party distribution continues to heat up," she said.

Quadrani gave Disney a $42 price target, saying it's her favorite of the bunch since she thinks it has the biggest gap between its current stock price and what it could be valued at. She sees it as a "great brand value" and cited the health of its ESPN and Disney Channel properties.

Disney shares fell 33 cents to finish trading at $31.70.

Quadrani started Time Warner off with a $40 price target, saying it's currently "attractively valued."

"We believe we will see meaningful digital distribution deals coming out of Time Warner over the next three to six months, which will help highlight the value of the vast TV library and act as a catalyst to shares," she said.

Time Warner shares fell 44 cents to end the day at $30.85.

She set a $54 price target for Viacom, saying its biggest cable assets are "long-term earnings generators."

"Viacom's networks have shown improvement in recent weeks, giving us confidence that ad revenue can once again return to double-digit rates of increase in (the first fiscal quarter of 2012) which we believe will be a catalyst to shares," she said.

Viacom's class B shares fell 28 cents to finish trading at $40.14.

Elsewhere in the sector, the analyst gave Discovery Communications a $43 price target. She called it a great, well-managed company with good assets, that is not as attractively valued as the others.

Discovery Communications shares fell 51 cents to finish trading at $38.09.