Central European Media Enterprises (CETV) shares have pulled back 10% since early October and about 15% since peaking in September. I think the current pullback will prove temporary with the company’s early November earnings report providing a positive catalyst. 3Q results won’t be exciting due to seasonally weak TV viewing in the summer but I expect the company to issue strong guidance for 4Q….

CETV’s recent weakness can be tied mostly to faltering stock markets in Central and Eastern Europe and Russia. For example, since peaking on October 4, the main index in Prague (CETV’s home market) has fallen 11%. Declines in other Central European markets have been as bad or worse. I believe most of the decline is due to increased risk aversion on the part of investors. The sharp decline in energy stocks has also contributed as many of the largest stocks in these markets are energy related.
Other potential reasons for the decline in CETV shares include Euro weakness and a new competitor in the Czech Republic. The Euro has been volatile but not that much changed since its decline from the $1.30s to the $1.20 range. As a U.S. company, CETV is exposed to Euro exchange rate fluctuations as the currencies of its operating countries closely track the Euro (CETV itself does very little Euro business). Dollar-based estimates may have to be adjusted for currency but the company goes out of its way to discuss results in local currencies so I don