Proactive Investors - ITV PLC (LON:ITV) shares are "cheap" and are JPMorgan (NYSE:JPM)'s preferred pick among the media sector's broadcasters as they're seen as offering the potential to benefit from a merger of its Studio arm and some recent internal improvements.
While "wary of the sustainability of the recent cyclical rally", the shares were reiterated on an 'overweight' rating and a price target of 140p, versus a last closing price of 85.26p.
This reflects five factors, the investment bank's analysts said, starting with the valuation, "which is largely underpinned by the value of Studios", trading on around 9.0 times 2023 forecast earnings that are depressed by at least 40% by investment in the new ITVX platform and the current cyclical slowdown.
But "most importantly", the new ITVX platform is seen a offering potential to "drive (materially) better monetization in the medium term".
Other factors include the recent Hollywood-linked interest in ITV Studios, after the last year's review of the production arm, with the analysts saying a merger could create a “super studio” with “producer-broadcaster benefits preserved and enhanced through a long-term supply agreement".
The shares, which have fallen 25% over the past 12 months, also reflect "low mid-term consensus expectations", the analysts said.