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Morgan Stanley Report Sparks Media Stock Rally

Media stocks rose yesterday following a surprisingly bullish report from Morgan Stanley. The company's media team believes that recent ad forecasts are too gloomy. Morgan Stanley's report, which was released Monday, suggests ad growth will be up 2% next year and up 5% over the next five years. In addition, affiliate revenue is expected to rise 5-6% next year.

Morgan Stanley raised estimates across the media industry saying, "We think television and in particular cable networks will not only avoid the fate of other traditional media assets but will actually thrive due to growing viewership, increasing competition for their product by pay-TV distributors and their position as the dominant inventory for national brand advertising."

Morgan Stanley media analyst Benjamin Swinburne raised estimates for Disney and CBS, which will join Time Warner in their top three categories. The analysts also upgraded Scripps Networks Interactive, but downgraded Discovery and Viacom saying the two companies lacked cyclical exposure, meaning they wouldn't benefit as much as others when the advertising market turns more positive. Discovery is more reliant on subscription revenue while Viacom has had ratings challenges. Both stocks benefited from the overall lift.

CBS shares rose 10% yesterday to close at $7.43; Disney rose 3.5% to $25.37; Scripps Networks Interactive jumped 3.7% to $30.94 while Time Warner rose 4.9% to $27.45. Discovery Communications benefited, with its shares rising 2.7% to $23.98 while Viacom was up 0.42% to $24.06.