YHOO, MSG, DTV and More Media Wall St. Reports - 9-21-12

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Yahoo

Well, it's been a long time coming but Yahoo (YHOO) shareholders can begin to breathe a bit easier. On Tuesday, the digital media company announced it had closed the first stage of monetizing its stake in Chinese Internet property, Alibaba. Investors had gotten a bit nervous about the commitment to capital returns as the negotiations dragged on and as the company welcomed a new CEO, Google's Marissa Mayer.

Nevertheless, according to JP Morgan's Doug Anmuth, this plan, which will return a total of $3.65B of proceeds to shareholders, "puts Yahoo back on track with the plan it outlined in May when the Alibaba deal was first announced". Returning 85% of net proceeds of the deal to investors pushed the analyst to raise his PT to $19, but he's not willing to move his Neutral rating until he gets some more visibility into new CEO, Mayer's plans. At this price, Anmuth doesn't believe investors are giving any value to the core YHOO biz.

Similarly, Barclays' analyst Ryan Ripp moved his PT up to $19 and outlined a 4 step roadmap for his team to get more constructive on the name: 1) clarity around Marissa Mayer's company restructuring, 2)Yahoo Japan value realization, 3) monetization of remaining Alibaba stake via a potential IPO, and 4) an acceleration in core fundamentals.

Madison Square Garden

With the kickoff of the 2012-2013 football season, Needham analyst Laura Martin took the opportunity to meet with the management of Madison Square Garden Co. (MSG). It's her contention that Wall Street underappreciates the upside from The Forum in LA -- based on her quick arithmetic and the $18M in forgivable debt lent to the firm by the City of Inglewood. She sees risk falling for MSG shares as the firm has spent over $700M out of its total $980M Transformation project budget. All this, coupled with her bullishness of the firm's Fuse music channel, prompted her to reiterate her Buy rating and $44 target price.

DirecTV

Latin America just keeps on growing for DirecTV (DTV). And according to a new research report from Credit Suisse's Stefan Anninger, the region now accounts for 35-40% of the firm's total enterprise value. With such a sizable asset, the analyst believes investors no longer have to rely upon a "bare bones" financial model and vague understanding of a business that is so critical to DTV's long term growth.

He believes that DTV Latin America is worth $19-$20B in enterprise value and should generate $1.2B in FCF by 2016. The analyst believes there is room for margin expansion down the road (though he wouldn't quite bet on it, yet) but also believes that increased competition in Brazil, the lack of a bundled offering, and the greater economy could jeopardize his thesis.

His higher estimates for DTV's Latin America business influenced Anninger to raise his PT to $58 (from $55). He has a NEUTRAL rating on DTV shares.

DreamWorks

DreamWorks Animation SKG (DWA) got an upgrade to Neutral from Janney's Tony Wible this week. He forecasts that the firm might have a hit on its hands with the The Guardians. He wrote, "Initial interest in The Guardians could set it up for a much needed hit." The film premiers in a couple of months and according to Wible's estimates, is tracking better than expected. He believes this alone may help fuel a near term rally in DWA shares.

The media analyst also believes DWA will benefit from a broader slate of films in 2013 and beyond. He sees a clear benefit to the stock from the combination of the NFLX cost savings under the new NWSA distribution deal and lower negative costs as well as from a potential TV network and the Oriental DreamWorks (ODW) partnership. He upped his fair value assessment of DWA to $19 (from $14.50).

IAC/InterActiveCorp

IAC/InterActiveCorp (IACI) also saw a lift in analyst estimates this week. This one came from Barclays' Mark May, who raised his numbers to reflect the recent About acquisition. The media analyst believes the deal, which should close in early October, should add $108M and $24M in revenue and OIBA contribution in 2013.

Other data points in IACI's business also appear to be tracking well. Barclays channel checks show core Search and Personals to be positive, particularly for Match.com. May also thinks the firm will step-up its share repurchase activity after a pause in the wake of the About deal. He raised his 12 month target $1 to $64 and maintains his Overweight rating of IACI shares.

Ad Agencies

Lastly, the week saw an update on the ad agency sector from Nomura's Michael Nathanson. Looking back on 2nd quarter earnings reports from the five biggest diversified holdings companies he tracks, revenues were up "an anemic 1.1%" at $12 billion. As the first quarter demonstrated, the analyst sees 3 speeds of growth: the slow growing (+2%) U.S. Market, the shrinking European market (-4%), and the quickly expanding Rest of World (+6%).

Though topline growth continues to slow, incremental margins for these 5 firms which include Havas, Interpublic, Omnicom, Publicis, and WPP, jumped to nearly 22%. This demonstrates the ability of these large firms to cut costs in a weakening ad market. The analyst took down his growth forecast 30bps to 3.4% for the year. He also tinkered with reduced forecasts for OMC and IPG. He maintained his $13 PT for IPG though raised his target to $56 (from $52) on OMC shares.

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