U.S. media stocks rally in 'afterglow' of Fed decision

By Gina Keating

LOS ANGELES, Sept 8 (Reuters) - Shares of major U.S. media companies rallied on Monday, some up more than 4 percent, in the "afterglow" of the Federal Reserve's decision to bail out mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), analysts said.

Walt Disney Co (DIS.N), News Corp NWSa.N and DreamWorks Animation SKG Inc DWA.N shares rose more than 4 percent, and Time Warner Inc (TWX.N), Viacom Inc (VIAb.N) and CBS Corp (CBS.N) were up nearly 3 percent on the New York Stock Exchange.

The Fed's move "potentially removes some of the extreme downside scenarios that could spill into the general economy," Christopher Marangi, associate portfolio manager at GAMCO Investors, said. "These stocks have been significantly out of favor recently so I think you are getting a little bit of relief on that."

"It's just general afterglow of the Fed's decision to bail out the two mortgage giants," Caris & Co analyst David Miller said.

"The economic outlook seems to have gotten a little better because of the Freddie and Fannie bailout," Standard & Poors analyst Tuna Amobi said. "There may be some feeling that (a fourth-quarter) contraction may not be as severe (as previously forecast)."

A drop in oil prices and a stronger dollar also could be buoying media stocks, analysts said.

"Lower oil prices means you will have higher discretionary spending, and media and entertainment falls under consumer discretionary," Miller said.

Amobi has a "strong buy" rating on Disney shares, a "buy" rating on News Corp, a "neutral" rating on DreamWorks and Time Warner shares, and a "sell" rating on CBS and Viacom shares.

GAMCO has a "hold" on CBS and Disney shares, and "buy" ratings on Viacom, Time Warner and News Corp shares.

Marangi said all the major U.S. media companies were trading "at significant discounts to their private market values, or what an informed buyer would pay for a business."

Disney shares were up 3.9 percent at $32.61, News Corp rose 3.8 percent to $14.22, DreamWorks' shares were up 3.5 percent at $31.16, Time Warner gained 2 percent to $15.56, Viacom was up 2.1 percent at $28.70, and CBS rose 1.8 percent to $16.65 in afternoon trading on the New York Stock Exchange. (Editing by Maureen Bavdek)