RBC At current valuation levels, RBC Dominion Securities analyst Drew McReynolds continue to see “attractive entry points” for most stocks in his Canadian diversified media coverage universe “provided the gradual improvements in advertising and content cycles continue and an economic hard landing is avoide,d.”
In a third-quarter earnings preview report released Wednesday titled Moving in the Right Direction But Still Navigating Headwinds, he said a “soft landing would provide a ‘constructive enough’ backdrop.”
‘Notable sector outperformers relative to the strong 21-per-cent total return performance for the S&P/ TSX Composite year-to-date are VerticalScope (up 65 per cent ), Transcontinental (up 32 per cent) and Cineplex (up 24 per cent),” said Mr. McReynolds. “Following a relatively underwhelming 2022 and 2023 for most stocks in our diversified media coverage, we believe improving sector performance should prove sustainable provided an economic hard landing is avoided in North America. Valuation-wise, we fully acknowledge the negative impact that longstanding structural headwinds have had and will continue to have on many segments of the Canadian media sector. While most valuations have moved off cyclical lows year-to-date in 2024, we believe current valuation levels continue to provide attractive entry points for most stocks in a soft landing scenario, setting the stage for further multiple expansion and share price appreciation should the recoveries in the advertising environment and content cycle pick up speed in 2025.”
The analyst named three “best ideas” heading into earnings season:
* VerticalScope Holdings Inc. with an “outperform” rating and $15 target. The average is $13.67.
* Cineplex Inc.with an “outperform” rating and $13 target. Average: $13.
* Transcontinental Inc. with an “outperform” rating and $22 target. Average: $20.67.
Mr. McReynolds also made three target changes:
* Corus Entertainment Inc. (“sector perform”) to 20 cents from 30 cents. Average: 13 cents.
* Spin Master Corp. (“outperform”) to $46 from $47. Average: $42.
* Thomson Reuters Corp. (“sector perform”) to US$171 from US$168. Average: US$166.09.
“For the media technology names in our coverage (Thomson Reuters, VerticalScope, Enthusiast Gaming, illumin), we believe the focus this quarter will be the extent to which year-over-year revenue growth improves sequentially in Q3/24, which would be consistent with our forecasts and a positive but modest overall growth environment,” said Mr. McReynolds. “For the content and distribution names in our coverage (Corus, Stingray, Boat Rocker, WildBrain, Cineplex), revenue mixes most resemble the traditional mass media segments of broadcasting, publishing, advertising, printing and content production. We view 2024 as largely a transition and/or recovery year for content and distribution post-U.S. guild strikes in 2023 with an improved set-up heading into 2025 with advertising and content environments expected to fully normalize. For the other media and discretionary names in our coverage (Transcontinental, Spin Master), the extent to which the North American economy performs in 2024 and 2025 will be the major earnings determinant with printing (in the case of Transcontinental) and toy sales (in the case of Spin Master) sensitive to the strength of the economy and overall consumer spending.”