With the cost of the streaming wars accelerating, Wall Street is likely to spend much of the new year debating what subscriber trends and production budget news will mean for 2022’s stock winners and losers.
And the impact of the coronavirus pandemic, notably the omicron variant, on businesses will also be in focus for analysts and investors assessing where to place bets in the new year.
Below, The Hollywood Reporter takes stock of six media-entertainment analysts’ recent upgrades and stock picks for the year ahead.
Tim Nollen, Macquarie
Picks: Discovery and Disney.
Why: The analyst upgraded Discovery in November with a $40 stock price target, citing “strong Discovery+ growth, the upcoming transformational WarnerMedia merger and a cheap valuation.” And he emphasized in a December note: “We believe that over the next year Discovery stock should be a highlight within the media sector given the tailwinds and thesis.”
Nollen also likes Disney, even though he used his December report to cut his price target by $10 to $185. “Our bullish thesis around Disney stock has centered around strong direct-to-consumer subscriber growth and a cyclical recovery at the park and theatrical businesses,” Nollen detailed. “While the macro environment with new COVID variants have pushed out the recovery at the park and theatrical businesses and Disney+ subscriber growth has been a bit light recently, we are still fundamentally positive on the stock.” His conclusion: “Disney remains a long-term winner in the streaming wars.”
Tuna Amobi, CFRA Research
Picks: Netflix, Disney, Comcast, AMC Networks, Lionsgate and Live Nation.
Why: “Over the next year, we think some of the potential catalysts for the performance of media and entertainment stocks include the continued reopening of the global economy – subject to the containment of the omicron or other COVID-19 variants as a potential risk factor, key milestones on the continuing execution of a global streaming strategy – subscriber/audience growth, international penetration, free cash flow and/or profitability trajectory etc., major M&A announcements or a wave of related activity, including some potential takeout candidates, and further release of pent-up consumer demand for live sports and out-of-home entertainment.”
Steven Cahall, Wells Fargo
Among his picks: Imax
Why: “We’re bullish on 2022,” the analyst wrote in a Dec. 16 report. “We think the exhibitors’ mindsets are improved despite omicron, the consumer appetite for premium theater going continues to prove out, and the content slate is unprecedented. We think the Imax box office has upside, driven by Imax’s percent of the domestic box office likely trending higher than history given the ‘power slate’ of releases.” His conclusion: “We think this could be one of the best media small- and mid-caps of 2022 with the next catalyst potentially a positive revision to medium-term estimates on an install outlook at fourth-quarter 2021 results.”
Michael Pachter, Wedbush Securities
Why: “Zynga by a lot,” says the analyst for his favorite entertainment stock for 2022. After all, it is “trading at pre-COVID levels with much stronger revenues and profits than they had in early 2020, and they have a bunch of new games coming,” Pachter explains. “The stock is trading at a trough multiple with earnings growth, so should be a double in 2022.”
Eric Handler, MKM Partners
Why: “We have a positive view towards the video games industry entering 2022 as secular trends remain positive, fundamentals are attractive, and valuations are towards the low end of historical trading ranges,” the analyst explained in a mid-December report. “Zynga is well set up for double-digit bookings growth in 2022 paced by new game releases and contributions from the recent acquisitions. In addition, we see an attractive free cash flow story building over the next 24 months as the company is approaching the last of its M&A related earnout payments in the first quarter 2022.”
Benjamin Swinburne, Morgan Stanley
Picks: Fox Corp., Endeavor, Spotify and hia current favorite Warner Music Group.
Why: “Growth in streaming, advertising and live entertainment will drive strong revenue growth across media and entertainment in ’22,” the analyst wrote in a year-ahead preview. “Our top ideas for next year can navigate rising content costs and translate (revenue growth into earnings upside.” Estimating that the global audio industry will grow rapidly over the coming years, “driven by streaming and the return to normal, particularly live events,” he picked two audio entertainment winners. “This provides a compelling setup for both owners of audio content (Warner Music) and distributors of that content (Spotify), both of whom should benefit from the secular growth backdrop,” Swinburne explained.