Media and Entertainment: Tariffs Won’t Cause Much Direct Harm, but Resulting Economic Weakness Could
Keeping our fair value estimates unchanged on media stocks.
Most US media and entertainment stocks sold off with the rest of the market. Notable companies that dropped as much or more than the broad market were Disney DIS, Live Nation LYV, Warner Bros. Discovery WBD, and Roku ROKU.
Why it matters: Tariffs specifically won’t have much impact on companies’ costs in this industry. Other than Roku, most don’t rely much or at all on selling goods. However, most do rely directly on consumer spending, so economic weakness that results from the tariffs could impede business.
- Disney’s parks and experiences generate most of its profit. A recession would likely depress tourism and reduce attendance at Disney’s parks. Apart from economic weakness, Disney is at risk of less international tourism to the US, particularly from Canada, due to chilled foreign relations.
- We believe Live Nation has similar exposure, as concert attendance is a luxury that consumers could pull back from if needed. We believe Warner’s underperformance is related largely to its debt burden, as many stocks of highly leveraged firms are weak, perhaps on fears of tightening credit.
The bottom line: We’re not currently adjusting any fair value estimates for media and entertainment firms due to multiple areas of speculation about resulting economic effects. However, a recession would dampen our near-term forecast and slightly lower fair value estimates for many of these firms.
- Wide-moat Disney should see its business cool in a recession, but we think the stock is sufficiently pricing in that risk, relative to our $125 fair value estimate. At current stock levels, we believe the firm’s improving streaming business makes up for potential experiences weakness.
- We also believe no-moat Warner’s recent streaming success will persist, so the firm can meet its obligations and prices in a sufficient buffer versus our $20 fair value estimate. Narrow-moat Live Nation is now trading at our $130 fair value estimate, which does not price in recession risk.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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