The equity research team at BMO Capital Markets is maintaining ratings for the major ad agencies and media and information companies it tracks, but has lowered its stock price targets markedly for all -- especially media research giant Nielsen, which it projects will dramatically underperform its peer group competitors during the industry’s downturn.
“We are lowering our price to $15 from $22 due to lower estimates and lower target multiples on our sum of the parts valuation,” BMO’s Daniel Salmon writes in a report sent to investors today.
“While we have confidence Nielsen’s strong business will weather the macro storms,” he continues, noting that Nielsen’s stock nonetheless would not perform as well as “higher quality names that are now on sale.”
Salmon is particularly optimistic for Disney, as well as major agency stocks for the long term, although all price targets have been revised downward.
Among the “headwinds” facing Nielsen during the downturn will be the impact of an overall reduction in global marketing information and analytics spending, which will likely put pressure on Nielsen’s contract negotiations going forward.
“Media clients may be less likely to purchase measurement and analytical services or may attempt to renegotiate contracts; these include large internet and media companies, as well as advertising agencies whose businesses are acutely affected by sharp reductions in marketer spend,” Salmon explains.
On the upside, Nielsen’s “tailwinds” include the fact that increased overall media usage, as well as changes in consumer viewing behavior will likely increase demand, especially among new and emerging streaming services, as well as marketers and agencies trying to get a handle on so-called “omnichannel” insights and behaviors.
“Change in consumer behavior could prompt more firms to commission research from Nielsen about changes in their target market,” Salmon notes, adding, that the researcher has been investing heavily in eCommerce measurement and other analytics likely to increase demand from “fast-moving consumer goods brands or other retailers that are looking to capture share or drive sales as the landscape appears to have shifted quickly.”