• by Joe Mandese  @mp_joemandese, March 7, 2011

Wall Street securities firm Deutsche Bank has initiated coverage of Nielsen Co. with a "buy" rating, and a 12-month price target of $34 a share, a 28% premium over its current trading. The firm's equities research team cited Nielsen's "dominant competitive position" and "sustainable competitive advantage," and the fact that its near-term revenues are extremely stable due to long-term staggered contracts with its major clients.

The report cites some potential downside risks to Nielsen, including "creeping competition" from new competitors, especially in its core TV ratings business where a number of companies are leveraging digital TV set-top device data to challenge Nielsen's old-school sample-based metering approaches.

Other risks include consolidation in the consumer packaged goods and retail marketing industries -- categories that are key to both Nielsen's marketing and media research businesses, as well as continuing fragmentation of media.

"The ability to adapt the measurement offering to account for content consumption on whichever media platform it occurs, whether it be the PC, Internet, out-of-home, or on mobile devices such as smartphones and tablets," represents both an opportunity and a risk, the equity research report noted.

It also singled out the potential negative impact that some recent industry audits of Nielsen's research methods could have on its long-term value, noting: "Recent measurement glitches such as the loss of Media Ratings Council accreditation for diaries, under-counting of "very long" URLs, and press reports alleging the potential further delay of 'Extended Screen' do not help Nielsen's industry reputation, and could create additional openings for competition."

Despite those risks, the Deutsche Bank team appears to be very bullish on Nielsen's stock due to the near monopolistic position it enjoys with its core clientele.

"Two-thirds of the business is built on subscriptions with long-term contracts and mathematically driven price escalation clauses," the report noted, adding: "What this all means, as we see it, is that the core business can be relied upon for stability and predictability through economic cycles, technological changes, encroaching competition, and regular bouts of often public criticism from some of the heaviest users of its products and services.

"Overall, we think investors should be comfortable with Nielsen's growth profile and its stability, as expected competitive challenges and any pricing pressure should be offset by growth in online/mobile measurement, consumer insights, and emerging markets."