Investors this year had bid up shares of legacy television content companies as those firms shifted their businesses to direct-to-consumer streaming video services. But those entertainment stocks have fallen sharply in recent days as Wall Street analysts have turned bearish.
On Friday, Wells Fargo analyst Steven Cahall downgraded three entertainment stocks: AMC Networks (AMCX), Discovery (DISCA) and ViacomCBS (VIAC). He lowered his ratings on AMC and ViacomCBS to underweight from equal weight. Cahall moved to equal weight from overweight on Discovery. He cut his price targets on all three.
Valuations were extended for the three because of investor enthusiasm for their streaming strategies, Cahall said in a note to clients.
“We think primarily nonfundamental investing drove massive rallies recently in AMCX, DISCA and VIAC,” Cahall said. “The companies are better off than they were in 2020 due to DTC (direct to consumer), but there’s too much risk to justify the recent valuations.”
Entertainment Stocks Take A Tumble
In afternoon trading on the stock market today, AMC stock sank 13.5%, near 52.70. On March 15, it notched a more than 5-year high of 83.63.
Meanwhile, Discovery tumbled 23.3%, near 44.30, and ViacomCBS fell 21.6%, near 52. Discovery hit an all-time high of 78.14 on March 19. ViacomCBS reached a record high of 101.97 on March 15.
Elsewhere among entertainment stocks, internet television leader Netflix (NFLX) rose 0.2%, near 503.85. Netflix stock hit its all-time high of 593.29 on Jan. 20.
On Thursday, research firm MoffettNathanson downgraded ViacomCBS to sell from neutral. It cut its price target on VIAC stock to 55 from 67.
Discovery, ViacomCBS Called ‘Overvalued’
On Tuesday, investment bank UBS downgraded Discovery to sell from neutral on valuation. It maintained a sell rating on ViacomCBS.
Last week, Macquarie Research called Discovery and ViacomCBS “overvalued” and downgraded both stocks to underperform from neutral.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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