Citi analyst Jason Bazinet on Monday cut his ratings on ViacomCBS and Discovery to Neutral from Buy.
Michael Nagle/Bloomberg
Both ViacomCBS and Discovery have been on a tear. Shares of the two television content companies sagged early in the pandemic but have since wiped out those losses and are higher than they were before Covid-19 arrived. For that, you can largely credit short-covering rallies that might be tied to the recent retail investor buying spree in stocks with large short-interest positions.
It is also true that both companies are making a new push into the streaming market. Discovery+ launched on Jan. 4 and ViacomCBS will launch Paramount+, an expanded version of their CBS All-Access service, on March 4. Still, both companies remain highly reliant on ad-supported cable channels.
Citi analyst Jason Bazinet on Monday cut his ratings on ViacomCBS (ticker: VIAC) and Discovery (DISCA) to Neutral from Buy, although with higher target prices. He raised his price target on Discovery from $36 to $46, and to $49 from $42 for ViacomCBS. He asserted that both stocks have recently been lifted by short-covering and sees no fundamental justification for the rallies.
“While each firm’s digital pivot (Paramount+ and Discovery+) is a positive, we suspect that cord cutting and the digital ad migration are apt to endure (if not accelerate).” In other words, the new streaming services alone won’t offset the pressure on their core ad-driven TV traditional TV businesses, he said.
The analyst also noted that among 55 stocks he tracks, Discovery ranks first–and ViacomCBS fourth–in current short interest. Over the past year, short-interest in ViacomCBS has quadrupled to 120 million shares from 30 million, he noted. Discovery’s short position has expanded, but more modestly, to 55 million shares, from 40 million.
“As such, we suspect that the rally is driven by bearish investors covering their positions,” he wrote. “We see no evidence of a slowdown in cord cutting or a migration of ad spending back to TV. While we should see ad growth improvement in 2021 on a cyclical recovery, we would view it as transitory (and reflected in the consensus).”
Year to date, ViacomCBS shares have rallied 33%, while Discovery has gained 35%. On Monday, ViacomCBS was up 4.1% to $50.50, while Discovery is off 1.9% to $40.62.
Write to Eric J. Savitz at [email protected]
