Investors across the world have been spooked by the coronavirus, and the market is feeling the effects. In response to the growing number of infections outside of China, stocks notched their worst weekly performance since the financial crisis in 2008.
That being said, in times of crisis, people turn to entertainment as an escape. And entertainment companies can ride that demand all the way to profits. Wall Street has long been sanguine about the money to be made in media, movies, and music.
So, it’s clear that entertainment sells. And some of Wall Street’s top analysts are recommending billion-dollar names from among the entertainment media. We’ve used TipRanks’ Stock Comparison tool to look at three recent calls in the industry, and to find out what makes two of them compelling buys – while the third is warding off the analyst community. Here are the results.
Lions Gate Entertainment Corporation (LGF.A)
Movies have been popular since their introduction a century ago. The high production overhead that characterizes the industry, combined with the profit potential of a blockbuster, practically writes an invitation for investors to buy shares. Lions Gate is a major production company in the motion picture, television, animation, and digital arenas, and brought in over $3.6 billion in revenue in 2019.
The stock is down in recent months, and the company missed earnings estimates in its fiscal Q3 report. The company reported 14 cents EPS on an adjusted basis, against a forecast of 18 cents. Revenues, however, were up; at $998.5 million, the top line beat the forecast by 7.8% and grew 6.9% year-over-year.
Despite the stock’s poor performance recently, some Wall Street analysts see its current situation as a buying opportunity. Barrington’s 4-star analyst James Goss writes, “A robust content pipeline for Starz provides encouragement for achieving the company's long-term goals for the platform. We remain encouraged by the overall trajectory of the service…”
Goss puts a Buy rating on LGF.A, in line with his view that the lower share price is an attractive point of entry. Supporting his upbeat outlook for the company’s prospects, he raised his price target from $12 to $14. His new target suggests room for 76% share appreciation in the coming 12 months. (To watch Goss’ track record, click here)
Lions Gate has a Strong Buy analyst consensus based on 3 Buys and 1 Hold given in recent weeks. The average price target is slightly more aggressive than Goss’, at $14.25, and implies an upside potential of 80% from the stock’s $7.93 share price. (See Lions Gate stock-price forecast on TipRanks)
iHeartMedia, Inc. (IHRT)
While so much today revolves around digital media, radio is still alive and well. iHeartMedia is the largest radio station owner in the US, with over 850 AM and FM stations. The company is also involved in media advertising and digital entertainment distribution.
IHRT reported flat revenue in its last quarterly, showing $1.03 billion. Year-over-year, Q4 adjusted EBITDA was also down. However, looking ahead, modernization efficiencies, continued digital growth driven by podcasting, and contribution of high-margin political revenue from presidential election year are expected to drive an improvement in EBITDA and margins.
Guggenheim analyst Currey Baker, rated 5-stars by TipRanks, is impressed with iHeartMedia’s combination of low share cost and strong prospects, and thus, initiated his coverage with a Buy rating. His price target, $21.50, indicates confidence in 42% upside growth this coming year. (To watch Baker’s track record, click here)
Supporting his optimism, Baker says in a recent research note, “iHeart's portfolio of radio and digital audio assets reaches consumers at industry-leading scale and generates robust, stable free cash flow. Management has not only demonstrated an ability to outperform the traditional radio broadcast market, but also leverage iHeart's brand/platform to leadership positions in emerging audio formats such as podcasting and streaming.”
IHRT is another stock with a Strong Buy consensus rating, buoyed by 4 Buys against a single Hold. Shares are selling for $15.01, and the $20.50 average price target suggests an upside potential of 37%. (See iHeartMedia stock-price forecast on TipRanks)
Tencent Music Entertainment Group (TME)
The final stock on our list is a big name in China. Tencent Music is the online music entertainment platform operated by China’s video game and online venture company Tencent in a join partnership with Spotify. Tencent Music offers a variety of apps, which have a combined 700 million active users and 120 million paying subscribers. TME has been trading publicly since December 2018.
TME is expected to report a 9-cent EPS for Q4 when it releases quarterly financial information on March 16. If it meets expectations, this will be a hefty jump up from one year ago, when it reported a net loss of 7 cents per share.
With all of that, TME shares are down 33% in the past 12 months. Oppenheimer analyst Bo Pei explains why in a research note on the company: “Shares are likely to be range-bound on uncertain live streaming regulations and increasing competition with short video platforms. We expect in-line 4Q results but are lowering 2020 estimates. TME is expected to cease master licensing agreement with one of the Big Three labels, which should further weigh on its sublicensing revenue and content cost savings likely offset by higher live streaming costs. Therefore, although we believe TME's music subscription business (15% of revenue) will continue to perform well, we see meaningful negative estimate revisions for Live Streaming (50% of revenue) and Sublicensing (15% of revenue) over the next earnings cycle and suggest investors wait for a better entry point.”
Pei downgrades his stance on TME to a Hold, and removes his previous price target, declining to set one for now. (To watch Pei’s track record, click here)
With 7 analyst ratings, including 3 Buys and 4 Holds, TME gets a Moderate Buy from the analyst consensus. Shares are selling for $12.15, and the average price target of $15.62 suggests a 29% upside potential in coming months. (See Tencent Music stock analysis on TipRanks)
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