Political tremors from Trump presidency to spark 'capital-destroying uncertainty' for media, tech and ad companies
Wall Street analysts Pivotal Research Group have downgraded stock valuations for leading media companies, advertising holding groups and tech firms, citing “capital-destroying uncertainty” at a time of global political unrest, leading to higher costs of capital and lower valuations.
As political tension grows under Trump rule, the media, tech and ad industry face 'capital-destroying uncertainty'
It’s been two months since Donald Trump won the US presidential election, and before the businessman has even been sworn into office, major corporations have had their stock valuations slashed in anticipation of an “unpredictable government” and “heightened political risks”.
Those companies who have seen share valuations sliced include Discovery, CBS, Adobe, Salesforce, Twitter, Interpublic, Publicis and WPP. Disney was hit hardest, its position downgraded from ‘hold’ to ‘sell’, with a new $86 price target vs. $102 previously.
This is in part due to a “riskier political environment” under Trump’s administration, and comes less than 24 hours after the president-elect banned CNN and Buzzfeed from asking questions at a press conference, leading to concerns about the future of an increasingly state-controlled, silenced media.
"We recognize that we are not political analysts, and neither are we market strategists," wrote Brian Wieser, an analyst at Pivotal. "However, in a period where uncertainties are so significant, price targets for specific stocks need to be rooted in a view about how political and equity market environments will evolve."
As such, the firm determines policies that are expected to help the economy as "optimistic at this time", while actual economic conditions are "unlikely" to improve.
The firm is uncertain that the new government's proposed free market-orientated and pro-business policies will come into play, while there are "significant" factions within government supporting mercantilism and populism.
Furthermore, the new economy faces "unusual risks associated with the mismanagement of government", Wieser added, given the "widespread lack of experience many individuals within the new administration have in overseeing governmental bodies".
"We are mindful that a poorly managed and unpredictable government could very well produce worse outcomes than a predictably inefficient one.
"With these risks in mind we think that the costs of capital incorporated in our models should be higher now than they were before the election, with a generally depressing effect on valuations."
The only thing predicted to positively impact valuations, or remain at the status-quo, would be a reform to corporate tax, should that happen.
Companies who are expected to fare well in a challenging environment include Google-owner Alphabet, Facebook, Fox and Time Warner.
Antitrust flexibility expected to loosen under Trump rule, paving way for AT&T/ Time Warner deal
In what will be music to the ears of Time Warner and AT&T, the firm predicts antitrust policies - which block mergers and acquisitions that are seen to oppose fair competition - will loosen over the next few years under a Trump government.
The firm therefore opines that the sale of Time Warner to telecommunications firm AT&T will not be blocked by the Justice Department, despite previous comments from Trump who said the deal “puts too much concentration of power in the hands of too few", and "will not be approved in my administration".