It was another tricky year for many entertainment stocks in 2023 – from cost cuts amid a need to move towards streaming profitability, pay TV cord-cutting and advertising market pressures to the Hollywood strikes and their impact on the theatrical slate.
This year, Wall Street will keep a close eye on what kind of progress companies can make on these fronts to move past the clouds overhanging industry stocks. And observers will be curious to see if recently renewed talk of possible M&A, which has boosted some stocks, will lead to actual deals.
So where do analysts recommend putting their money in the new year? Instead of touting big Hollywood stocks, many are pointing to opportunities elsewhere heading into the new year.
Here is The Hollywood Reporter‘s look at some stocks that media and entertainment analysts have started touting as their top picks for 2024.
Steven Cahall, Wells Fargo
Pick: Walt Disney
Why: In his Dec. 20 report entitled “The 2024 Oracle,” Cahall didn’t sound too bullish looking ahead. “We expect challenging trends, including advertising, cord-cutting and (streaming) profitability to persist into ’24,” he wrote. “But, causes have effects: this may be a consolidation year.” His takeaway: “We prefer larger-scale companies, with Disney still our top idea on self-help risk/reward.” He has an “overweight” rating and $115 stock price target on the Mouse House.
Cahall is also positive on select additional entertainment stocks, while being bearish on others. “Our favorite names to own are Disney (earnings per share upside on direct-to-consumer and clarity on ESPN), Spotify (still a margin/free cash flow story) and Netflix and Universal Music Group (overall quality despite high valuations),” he noted. “Our favorite names to avoid/sell are Fox (ESPN direct-to-consumer risk, Fox News market share), Sinclair (debt and litigation risks) and AMC Networks (lack of M&A participation).” Among his ratings changes for 2024 are an upgrade for Paramount Global to “equal weight” due to potential M&A and a downgrade of Cinemark to “underweight” due to the 2024 film slate.
So why is Disney Cahall’s best idea for the new year? Its scale is one part of the story. “Given uncertainties in the sector — ad recession, cord cutting, streaming’s TBD profit outlook — we have a strong preference for scale,” he explained. “Larger players have more content, generally better balance sheets and ultimately more options to win and retain consumers to drive profits.”
Disney investor concern may have also moved past its peak, the analyst suggested. “We think Disney has both turned a corner but also is not out of the woods,” he argued. “We think sentiment bottomed in September, while fiscal fourth-quarter 2023 results was a turning point. Fiscal year 2024 free cash flow guidance and a firm commitment to reaching direct-to-consumer breakeven by fiscal fourth quarter 2024 has made high-quality earnings growth more visible.”
Cahall’s conclusion: “Disney has the strongest 2022-25 estimated earnings per share growth in large- cap media, but also more risk to negative revisions … We believe the negative revision trend will reverse in 2024. This makes us more bullish on the Disney risk/reward.”
Eric Handler, Roth MKM
Pick: TKO Group
Why: Just a few months ago, Endeavor merged its mixed martial arts powerhouse UFC with sports entertainment titan WWE. And the resulting TKO is Handler’s “top pick” for 2024.
“We continue to have a positive view toward sports/live events programming, especially those with a
high level of revenue being contractually guaranteed,” Handler explained about the broader sector. “The market for sports rights fees remains strong, aided by an increasing number of interested distributors.” For TKO specifically, the analyst sees growth ahead, saying it was “well-positioned for mid-teens growth” over the next three years in terms of revenue and adjusted earnings before interest, taxes, depreciation and amortization.
Among 2024 catalysts, MKM’s Handler mentioned a likely management announcement on capital return plans, sponsorship deals for WWE’s annual WrestleMania spectacular and an expected new U.S. TV rights deal for WWE’s flagship show Raw. “With TKO shares down roughly 29 percent since the Sept. 21 announcement of a 1.4 times deal for Smackdown (compared to a near 8 percent upward move in the S&P 500), it appears the market is pricing in a deal value for Raw at less than a 1.4 times increase,” argued the expert who predicts a new agreement worth “at least” that.
Plus, Handler expcects the start of the exclusive negotiations window for UFC’s U.S. linear and pay-per-view rights deal, currently held by ESPN, to start this year. His forecast: “A UFC TV deal could be announced by year-end with new contract terms upwards of two times the current value.”
Stephen Glagola, TD Cowen
Pick: Liberty Formula One Group
Why: A sports name is also the top pick for Glagola, who focuses on live entertainment and other stocks. Liberty Media’s racing circuit Formula One Group is in the pole position to outperform in the new year, according to the TD Cowen expert. Calling it “our best idea for 2024,” Glagola, who has an “outperform” rating and $90 price target on the stock, particularly noted that “the market is underappreciating improving asset utilization, particularly undermonetized U.S. media rights.”
His thesis: “We view Formula One Group as a capital-light royalty on the growth and monetization of a premium global sports league.” And the analyst highlighted: “Formula One Group’s highly contracted revenue that contains annual escalators and variable cost structure provide for low execution risk and resilience against economic downturns.”
With the 2024 season consisting of 24 races, up from 22 in 2023, including a return of China for the first time since 2019, Glagola is bullish on the new year. “Assuming no cancellations, we expect the greater race schedule to support continued double-digit percentage growth in promotion revenue and sponsorship growth,” he said.
Glagola also likes the stocks of Live Nation Entertainment (price target $97) and fantasy sports and sports betting firm DraftKings (price target $39), on both of which he has “outperform” ratings as well.
Michael Pachter, Wedbush Securities
Why: For years, Pachter was bearish on Netflix, but in 2022, he turned bullish on the streaming giant, and in 2023, he added the stock to Wedbush’s Best Ideas List. He has an “outperform” rating and $525 stock price target on Netflix shares. Why? “The company can generate significantly more free cash flow than its guidance suggests,” Pachter wrote recently. “We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while password sharing crackdown and eventually its ad-supported tier should further boost cash generation.”
While many Hollywood streamers are still looking to turn profitable, the expert says Netflix is “well-positioned in this murky environment as streamers are shifting strategy and should be valued as an immensely profitable, slow-growth company.” His prediction: “There is further growth in the coming quarters, which should result in free cash flow expansion as Netflix keeps costs in check.”
In a Dec. 21 report, the expert also noted encouraging latest survey results. “Our positive thesis on Netflix was partly based on the password sharing crackdown driving both net subscribers higher and average revenue per user (ARPU) higher,” he wrote. “Recent results and our survey reinforce our thesis for the fourth quarter.”
Just like at the end of 2022, Pachter also highlighted Imax, on which he has an “outperform” rating and $26 stock price target, as a top pick heading into the new year. After all, the giant-screen exhibitor is “the best way to play the theatrical rebound as consumers’ ongoing shift toward premium screens is driving significant market share gains,” he wrote in a recent report. He also touted the company’s “expanding” global footprint, the expansion of “its relevance globally by leaning into local-language content (50-plus titles in 2023 and growing annually),” and the fact that Imax is “poised to return to or surpass peak earnings before interest, taxes, depreciation and amortization margins.”
Benjamin Swinburne, Morgan Stanley
Why:Swinburne and his team have “overweight” ratings on various sector stocks, but calls music streaming powerhouse Spotify his top pick with a price target of $230.
“Despite a streaming industry where user growth is slowing and despite a leading market share (around 35 percent), Spotify is on pace to deliver a record year in 2023,” he highlighted in his 2024 stocks preview report. “Our above-consensus estimates may be conservative as our revenue growth expectations lag the company’s 20 percent-plus guidance.”
And Swinburne pointed out: “While Spotify shares have performed well, the market continues to value a greater share of streaming music value to the labels when adjusted for market share of the supply (label) and demand (digital service providers) side of the market.”
The expert described the key industry trends underlining his thinking this way: “We see music and live entertainment exhibiting the strongest fundamental trends heading into ’24 and recommend ‘overweight’ Spotify, Warner Music Group and Live Nation (a recent upgrade). Continued demand for experiences underpin ‘overweights’ on Walt Disney, Cedar Fair and Six Flags.”
Added Swinburne: “Thematically, we position our recommendations to align with our view that underlying consumer demand for content and experiences will remain robust in the year and years ahead. As 2024 faces a slowing economy, we see investors rewarding the consumer services that can demonstrate pricing power across streaming video (‘overweight’-rated Netflix, Walt Disney) and audio (Spotify, Warner Music), and companies that are positioned to benefit from durable demand for experiences,:
Plus, he highlighted his “overweight” rating on exhibitor Cinemark, explaining: “A temporary drop in film supply in ’24 is priced into Cinemark, and ’25 will rebound.”
Meanwhile, among cable, satellite and other distribution companies, Comcast is Swinburne’s top pick with an “overweight” rating and $52 stock price target. “Comcast shares (are) trading at a historical roughly 50 percent discount to the S&P relative to its history,” the expert highlighted in a recent report. “This is a function of lower expected organic growth and concerns over potential large-scale M&A outside of its core growth areas.”
So why is he bullish? “Our view is that valuation is already reflecting a lack of conviction in both growth and capital allocation decisions,” Swinburne explained. “In addition, we see clear drivers of around 10 percent adjusted earnings per share and free cash flow per share growth over the next several years. Finally, we believe that in this higher (interest) rate environment, Comcast’s investment-grade balance sheet is a strategic asset and competitive advantage.” The analyst also touted “the strong growth in Comcast’s (theme) parks businesses and the declining losses at Peacock.”
Jeff Wlodarczak, Pivotal Research Group
Pick: Liberty SiriusXM Group
Why:On Dec. 12, Liberty Media and SiriusXM made things official: Liberty’s SiriusXM tracking stock group will combine with the satellite radio and audio entertainment powerhouse to create a new public company, dubbed “New SiriusXM.”
Wlodarczak liked what he saw in the all-stock tax-free merger agreement, noting in a report that “net-net (it) was better than expected for SiriusXM shareholders.” But he reiterated his “hold” rating on SiriusXM shares, while slightly raising his price target from $4.80 to $5.60.
In comparison, he touted his “buy” rating on Liberty SiriusXM, calling it “the materially better way to play SiriusXM.” The expert also raised his stock price target on the Liberty SiriusXM tracking stock by $6 to $47. “It is a high certainty that the current 33 percent gap to net asset value will narrow to zero on deal close, implying substantial upside,” Wlodarczak wrote.
Asked why Liberty SiriusXM is his best bet for 2024, he explained to THR that the stock “will likely generate at least a 40 percent return in approximately seven months.”
Doug Creutz, TD Cowen
Pick: Take-Two Interactive Software
Why: Gaming, anyone? Entertainment industry analyst Creutz highlighted the same video gaming stock in a Dec. 12 report, entitled “Best Ideas 2024: Multi-Year Pipeline Should Deliver Meaningful Growth,” as a year earlier. He still has an “outperform” rating on it, but his stock price target has moved to $173 from $147 in late 2022.
“Take-Two is a top-tier operator in the global video game market with the best long-term track record in its peer group,” Creutz explained his pick. “Expected catalysts include the release ofGrand Theft Auto VIin early 2025, as well as what we expect to be the industry’s most robust pipeline in general over the next several years.” Touting the firm’s “development talent, intellectual property and strong management,” he argued that “Take-Two remains a high-quality vehicle to invest in what we expect to be above-GDP growth (at high returns on capital) for the video gaming industry over the next decade.”
Creutz also suggested that investors are “overly bearish on mobile gaming,” explaining: “The mobile market has returned to year-over-year growth in 2023 after a pullback in the second half of 2021 and 2022 driven by the end of pandemic conditions and Apple’s identifier for advertisers changes. We expect new title launches (including the recently launchedMatch FactoryandTop Troops,and 2024’sStar Wars: Hunters) to help Take-Two’s mobile bookings to return to growth in fiscal year 2024.”
Creutz also has two other stocks that he likes right now and recommends with “outperform” ratings – Warner Bros. Discovery (with a price target of $15) and Israeli mobile gaming firm Playtika ($25).
Craig Moffett, MoffettNathanson
Pick: Charter Communications
Why: The cable and telecom expert calls cable giant Charter Communications, on which he has a “buy” rating with a $708 stock price target, his best idea going into 2024.
The stock “started to really take off a bit around mid-year,” he explained during a recent call previewing the new year for investors. “It’s given some back, particularly with some disappointing guidance that I’ll talk about in a second, so it ended up for the full year slightly below the S&P 500. There was what I would describe as a leavening of bearish sentiment over the back half of the year – again, until recently where it has given some back – that certainly doesn’t bring it anywhere near bullish territory.”
Moffett’s conclusion: “The general sentiment about Charter and cable in general is still negative and therein lies the opportunity. This is an undervalued stock, and I think the story is still a lot better than
Explaining the bull case, the analyst noted, among other things, that “broadband additions have slowed, but are now predictable at ‘something slightly better than zero’,” that broadband subscribers’ average revenue per user growth would accelerate and that “wireless margin assumptions are too low.”
As the company laps the year-ago introduction of discounts for Spectrum One, including home Internet and a free year of both Spectrum Advanced WiFi and an Unlimited Mobile line with a Spectrum cell phone plan, “Charter will start to be a significant grower again,” Moffett said. “And it’s an extraordinarily attractive valuation for a company with what is still attractive growth.”