NEW YORK -- A flurry of downgrades on Wall Street rattled shares of News Corp. and Walt Disney Friday, an ugly day for media stocks.
Morgan Stanley Dean Witter analyst Richard Bilotti led the charge, urging clients to "underweight" the entertainment sector and cutting his ratings on Walt Disney, News Corp. and Fox Entertainment shares to neutral from outperform.
SG Cowen's Edward Hatch also weighed in, lowering his long-term (12-18 month) price target for Disney stock to $38 from $42 and reducing cash flow estimates. He said a weak ad market is hitting both ABC and Disney's sports-related programming properties.
"It's difficult to see a near-term catalyst to drive Disney's shares higher," Hatch wrote, besides a general improvement in the economy or an upside surprise in attendance from the Mouse's new California Adventure theme park.
Bilotti is concerned with the immediate advertising climate as well as the longer-term outlook. "Television -- both broadcast networks and cable networks -- is, in our opinion, no longer a classic growth business," he said, citing audience fragmentation and broadband links that he thinks will transform the Internet into an entertainment competitor over the next three to five years.
Also, while he said News Corp. could eventually realize value from an IPO of Sky Global Network, perhaps in a deal with DirecTV, Fox Entertainment has no such trigger on the horizon to drive its stock higher.
Disney shares fell 1.2% to close at $29.99.
News Corp. was down 2.4% at $36.08 and Fox fell 3.64% to $22.75.
Other media shares felt the pain as well. Viacom dipped 2.75% to close at $48.50. AOL Time Warner, also hit by a drop in tech stocks, declined 4.4% to $42.06.
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