“The past few months have shown that Disney will likely face some serious content obstacles if it is to meet its fiscal year 2024 subscriber guidance,” Cahall explained. “Thus, the backdrop for Disney into 2022 is a proper execution story, in our view. Given Disney’s history in delivering the content goods, we think it’s an attractive setup, so it’s our favorite large-cap growth idea for 2022.”
Cahall also touted Discovery’s stock, which he also rates “overweight” with a $46 price target, as a large-cap value play “as we think it’s well below fair value.” The analyst said the mega-merger with AT&T’s WarnerMedia, expected to close by mid-year, will bring “bona fide hit factories” HBO and Warner Bros. into the fold. “Discovery needs to be on everyone’s radar for 2022,” the Wells Fargo expert concluded. “Investors should see this as a strong global content player, albeit with a bumpy integration period ahead.”
Explaining his upgrade of Lionsgate shares from “equal weight” to “overweight” with a price target of $25, up from $15 previously, Cahall wrote: “We think the content side of the house will see increasing values due to the insatiable appetite of streamers. Holding Lionsgate back is concerns on Starz’s ability to compete, but we see the company’s recent announcement on corporate action as creating value even with a challenged multiple at Starz assuming a de-merger.”
Indeed, the company said in November it was considering a possible spin-off or other alternatives for Starz, with Cahall putting the company’s de-merged sum of its parts at $25 per share.
The analyst on Tuesday also downgraded SiriusXM shares from “overweight” to “equal weight” with a $1 price target cut to $7. “We’re big fans of the SiriusXM business model and management team,” he said. “However, we think the stock ebbs and flows with self-pay net adds, which will be understandably weaker in 2022” amid car sales volatility.
Cahall also summarized his bigger-picture take on the media and entertainment sector in a report entitled “The 2022 Oracle.” “We think the streaming wars are driving content values higher, so we like the scaled streaming players with various risk/rewards at Netflix, Disney and Discovery,” he explained. “We also think studios like Lionsgate and ViacomCBS can unlock value during this gold rush.”
Deals could be key here, he suggested. “The race for content has been the traditional driver of media consolidation,” Cahall wrote. “We actually think 2022 could be more about de-merging to unlock studio/streaming values from linear” TV businesses. He called that “the best next step for ViacomCBS.”
But the Wells Fargo analyst also highlighted that he and his team “remain bearish on cable as we lower net adds at Comcast and Charter Communications and think it’s early innings for tougher times.” Cable stocks were hit by investor concerns about slowing broadband subscriber growth momentum during the second half of 2021.
Overall, “we’d summarize our view on stocks as ‘selective’,” Cahall concluded. “Stocks we like tend to offer a combination of quality assets, but generally with disconnected prices.”