Analyst: Local Stations "In Free-Fall"

Pali Research analyst Richard Greenfield on Thursday reduced his fourth-quarter estimates for CBS for the second time in a week, downgrading the broadcaster to a “sell” rating based on an increasingly dire outlook at the local stations level.In a note to investors dated Jan. 29, Greenfield characterized the local TV business as being “in complete free-fall,” before noting that CBS TV station revenues “could decline 35-40 percent in 2009, with profits down 65-70 percent.”Greenfield, who maintained his $5 price target on the stock, said CBS inevitably will eliminate its quarterly dividend payout. Earlier this week, Sanford C. Bernstein & Co. analyst Michael Nathanson came to a similar conclusion, saying that CBS is likely to cut its dividend in order to “stave off a further cut in its credit rating to one level above non-investment grade.”Nathanson on Monday projected that revenue at CBS’ owned-and-operated TV stations will fall 26 percent versus last year, as the local advertising market continues to dwindle.Meanwhile, Greenfield noted that CBS is not the only broadcaster facing a rocky 2009, as deteriorating conditions at the local level will have an impact “across the entire industry.” To that end, the analyst also slapped a “sell” rating on News Corp.In a separate note, Greenfield issued Pali’s fifth earnings reduction for News Corp. in the past five months, saying that he has become “increasing surprised/frustrated with [chairman Rupert Murdoch’s] lack of strategic direction related to the company’s television station and newspaper assets.” While the two segments are overshadowed by News Corp.’s cable and studio units––Greenfield projects that the stations and newspaper business will account for a mere 8 percent of the media conglomerate’s total operating income by FY ‘10, down from 34 percent a year ago––the analyst is vexed by Murdoch’s demonstrable loyalty to some of the weaker aspects of the portfolio.“Our fear is that News Corp. is so committed to its existing businesses that it will be willing to sustain businesses that slip into negative profitability for years, (similar to its approach to the NY Post),” Greenfield said.News Corp.’s TV stations, stand to weather as much as a 40 percent revenue decline year-over-year, with operating profits down at least 70 percent, per Greenfield’s analysis.Earlier in the week, Greenfield reduced his estimate on Walt Disney Co.’s 2009 operating income, projecting an 18.8 percent decline ($6.49 billion) versus the previous estimate of negative 15.4 percent ($6.76 billion). Greenfield maintained the Mouse’s neutral rating.(This afternoon, Disney-ABC Television Group announced it was in the process of laying off around 5 percent of its workforce.)On a day when the Dow Jones Industrial Average fell 182 points, or 2.17 percent, to 8193.85, all three stocks trended downward. CBS in early-afternoon trading fell 7.4 percent to $6.12 per share, while News Corp. dropped 7.9 percent to $7.58. Shares of Disney dipped 3.9 percent to $21.39.

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Analyst: Local Stations "In Free-Fall"

Anthony Crupi

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Anthony Crupi