The opening quarter of 2011 saw the shares of a range of entertainment conglomerates hit new multiyear highs as double-digit gains for all sector biggies except Sony Corp. outpaced the broad-based S&P 500 stock index.
The gains, led again by CBS Corp., continued the upward trend that many sector stocks had seen in 2010 and even 2009. But once again, the jump in Netflix shares for the opening quarter of 2011, which ended on Thursday, exceeded that of all sector giants — as it had done for the full year 2010.
Wall Street observers noted the solid financial momentum as well as shareholder returns via dividend payments and stock buybacks as key reasons for the gains of sector stocks. And amid continued economic and advertising market improvements, the cable networks divisions of sector giants have maintained healthy growth momentum.
“The sector has been very strong as cord cutting fears have eroded and the ad cycle stays strong,” said Nomura Securities analyst Michael Nathanson.
Some market prognosticators have also pointed out that the third years of presidential terms tend to be good years for stock markets overall.
Despite the run-up in many sector stocks, which started in 2009 following one of the worst years for sector stocks in a long time, several analysts surveyed by The Hollywood Reportersee further room to grow as the year unfolds.
“There is more upside,” said David Bank, analyst at RBC Capital Markets. His favorite pick among conglomerates is Viacom, which he rates at “outperform.”
“Ratings are on fire, and national ad macro [momentum] is great heading to the upfronts,” he said. “Plus, they could be a beneficiary of an NFL work stoppage as ad buyers seek to replace young male eyeballs should football not be there.”
The recent earthquake and tsunami in Japan affected stock markets temporarily and continued to drag Sony shares down. The U.S. depositary shares of the company ended the quarter down 7.4% from their 2010 closing price, according to Bloomberg.
Among other sector biggies, shares of CBS were once again the biggest gainer, rising 31.4% in the first quarter amid continued ad gains and a bullish investor event.
Viacom shares gained 17.4%, Disney — which started off the year by hitting a 10-year high — was up in the mid-teen percentage range, News Corp. advanced 13.4%, and Time Warner improved 11% in the quarter, according to Bloomberg.
The gains exceeded the 5.4% gain in the S&P 500. Meanwhile, Netflix shares rose 35.3% in the first quarter to end it at $237.78 after last month setting an all-time high of $247.55.
In recent weeks, new online video competitors to Netflix have lead to some investor concerns, but some analysts have also reiterated their confidence in Netflix and boosted their ratings and/or price targets on the stock.
John Malone’s Liberty Media stocks continued to do well in the first quarter as Liberty Media Capital and Liberty Starz each rose nearly 20%.
Big TV distributors also posted stock gains in the first quarter as satellite TV provider Dish Network shares rose 23.9%, DirecTV gained 17.2%, and cable giant Comcast Corp. was up 11.6% after investors bid up the stock after the close of the NBCUniversal deal. Sanford C. Bernstein analyst Craig Moffett raised his price target on Comcast by $5 to $31 on Thursday.
Music major Warner Music Group, which is in the second round of exploring a possible sale of the overall company or its recorded music assets, has seen its stock climb in recent days. For the first quarter, it recorded a 20.2% jump to $6.77.
Meanwhile, stock decliners of the opening quarter of 2011 include standalone studio companies Lionsgate (down 4%) and DreamWorks Animation (down 5.2%), as well as poor-play cable network firms Discovery Communications (down 4.3%) and Scripps Networks Interactive (down 3.2%).