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Time to rethink the fourth quarter - October 10, 2008

It's hard to time right now whether a stock's movement is the result of some more or less rational market assessment of a company's prospects or simply the effects of the storm surge sweeping over global stock exchanges. But media stocks seemed to be getting a double whammy on Friday: another 500 point dive in the Dow (as of mid-afternoon) and the fallout from Viacom's profit warning. Citing "the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth," the company said its full-year net earnings from continuing operations would grow in the "mid-single to low double-digit" percentage range, down from the "low double-digit" growth it predicted in July. Its shares dropped more than 25% on the news, helped along by the undertow of the general market meltdown.

Analysts were even gloomier. UBS analyst Michael Morris cut the target price for Viacom to $27 from $35 and lowered his estimate for earnings per share in fiscal 2008 by 11 cents to $2.51. Worse, Morris went beyond softening ad revenue to predict "weakness" in DVD sales this fourth quarter and into 2009, affecting Viacom as well as the other major media companies.

Pali Research analyst Rich Greenfield piled on, trimming his fiscal 2009 full-year EPS estimate for News Corp. by 10 cents, to $1.16, on reduced expectations for its TV stations. News Corp. shares were off more than 13% in afternoon "trading."

Time Warner shares dropped below $9, off more than 11%. Disney shares were off 8%.
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