US media stock rating reduced from overweight to reduction

Morgan Stanley today released a study that downgraded its NASDAQ:AMCN media share rating from "overweight" to "reduced holdings", with the target price lowered from $2.35 to $1.78.

The following is a summary of the report:

The third-quarter results were less than expected, so we reduced the forecasts for 2013 and 2014 per share (EPS) by 96% and 63% respectively. We note that the company is trying to optimize the advertising network, but because of the uncertain macroeconomic situation, we are cautious about its advertising business prospects. Reduced to "reduction".

Earnings below forecast

Net revenue for the second quarter of this year was $63 million trillion, down 5% per cent compared with our forecast of 2%, but in line with the company's guidance band (63 million to 65 million dollars). Diluted 0.08 dollars per share, more than our forecast of 0.07 dollars.

Reduce profit forecasts

We reduced the forecasts for 2013 and 2014 per share (EPS) by 96% and 63% respectively. We expect weak revenue growth and increased operating costs. The target share price is 2% lower than the current stock price, which corresponds to 25 times times the 2014 earnings forecast for EPS.

Reduced to reduction

Since the start of the year, the US media share price has fallen by 6%, while the Nasdaq index has risen by 22%, and our research stocks have risen by an average of 60%. We expect the unit to continue to weaken for the reasons: 1 Air US media estimates that the third quarter of advertising revenue to reduce year-on-year 0.5% to 3.3%, compared with Sina and Sohu growth of 25% to 61%. 2 The US media is more susceptible to macroeconomic downturns than peers because it relies more heavily on the automotive and financial sectors, and lower consumption of high-end food and beverages will continue to reduce its advertising revenues.

Variables

If the US media revenue growth is higher than expected and cost control is better than expected, the unit could outperform expectations. We note that the company is optimizing its advertising network and should help boost profitability. If dividends or additional stock buybacks are announced, the share price is likely to rise. The company's net cash balance could also prop up the share price.