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On Monday, Morgan Stanley analyst Benjamin Swinburne downgraded Paramount Global (NASDAQ:PARA) and Fox Corporation (NASDAQ:FOXA).
Paramount Global was moved from Equal-Weight to Underweight, with the firm’s price target on the stock lowered to $22 from $32 per share based on its shares trading at a “premium to its peers despite a more uncertain path towards long-term EBITDA and FCF growth.”
Meanwhile, Fox was downgraded from Overweight to Equal-Weight, with its price target cut to $38 from $45 per share. Swinburne said their previous thesis on Fox was based on the market undervaluing Fox’s assets and under-appreciating their growth prospects. However, their more cautious outlook on advertising aligns them with consensus in their base case.
Morgan Stanley is overall incrementally cautious about TV/streaming, outlining key reasons such as the pivot to streaming becoming more difficult, the advertising revenue outlook dimming, and Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX) “increasingly eager to peel away major US sports from the pay-TV bundle.”
“We are lowering net adds expectations across the board to reflect rising churn risk from consumers trimming their streaming portfolios in a more difficult economic environment and we are broadly below consensus,” explained Swinburne. “A potential recession creates risk to advertising estimates, which may be exacerbated by Disney and Netflix adding advertising inventory as ad budgets come under more pressure. We are lowering our advertising estimates across the board.”
Fox shares have dipped 1% Monday, while Paramount shares are down 1.2%.
