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3 Stocks to Buy From the Prospering Entertainment Industry

Aniruddha Ganguly
·7 min read

Companies of the Zacks Film and Television Production and Distribution industry like ViacomCBS (VIAC), News Corporation (NWSA) and Lionsgate (LGF.A) are some of the major beneficiaries of the coronavirus pandemic-led demand for media, music and news. The closure of movie theaters, theme parks and cruise lines and restriction on travelling helped drive demand for digital entertainment despite coronavirus-induced production disruption.

Moreover, a steady recovery in the advertising spending environment bodes well for film and television production companies.

Industry Description

The Zacks Film and Television Production and Distribution industry comprises companies involved in film and TV production, distribution and exhibition. The main activities of the industry participants include production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors.

The companies are heavily dependent on box-office performance of their films, both domestically and internationally, the number of film releases and ratings of TV shows.

3 Film and Television Production Industry Trends to Watch Out For

Over-the-Top Services Gaining Prominence: Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies like Netflix (NFLX) and Disney (DIS) are increasingly producing original and award-winning feed to reduce licensing costs and excessive dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.

Binge Watching Driving Consumption: Moreover, factors such as binge watching, deepening Internet penetration and advancement in mobile, video, and wireless technologies got viewers glued to small screens. In order to keep pace with new consumption patterns, industry participants are turning to digital content distribution. Emergence of digital capabilities is making consumer data easily available to companies. With the use of AI tools, production houses are gaining a better understanding of user preference. This is helping them produce content that strikes a chord with viewers. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streamers like Netflix.

Technological Advancement Aids Prospects: Exhibitors are turning to highly efficient and cost-effective technologies like laser-based projection systems to enhance image quality and the entire movie experience. Additionally, the use of technologies like motion seating, immersive audio systems and interactive movies among others is expected to enhance the viewing experience. Increasing adoption of AR and VR technologies bodes well for industry participants. However, evolution of alternative motion picture distribution channels such as home video, pay-per-view, streaming services, video-on-demand, Internet and syndicated and broadcast television is hurting exhibitors.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Film and Television Production and Distribution industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #109, which places it in the top 44% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags S&P 500 & Sector

The Zacks Film and Television Production and Distribution industry has underperformed both the Zacks S&P 500 composite and its own sector in the past year.

The stocks in this industry have collectively gained 3.1% compared with the S&P 500’s rise of 14.4% and the Zacks Consumer Discretionary sector’s rally of 6.3% over the same time frame.

One Year Price Performance

 

Industry’s Current Valuation

On the basis of the trailing 12-month price-to-sales ratio (P/S), a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 0.96X compared with the S&P 500’s 4.36X and the sector’s 2.76X.

Over the past five years, the industry has traded as high as 1.79X and as low as 0.52X, recording a median of 1.14X as the charts below show.

Price-to-Sales Ratio (TTM)

 

3 Film & Television Stocks to Buy Right Now

ViacomCBS: This New York-based company’s solid cable network portfolio is a major growth driver. Growing traction of Showtime, BET, Comedy Central and Nickelodeon is expected to drive top-line growth. Additionally, this Zacks Rank #2 (Buy) company is also expected to benefit from Paramount’s extensive library of films and television programs. The company’s acquisition of a 49% stake in Miramax boosted content portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ViacomCBS also boasts a solid portfolio of streaming services (both advertising and subscription-based offerings), including CBS All Access, Showtime OTT, Pluto TV, Noggin and BET+. The acquisition of Pluto TV is particularly noteworthy as it offers more than 250 live linear channels and thousands of hours of on-demand content. Pluto TV partners with more than 175 content providers, including media houses, film and TV studios that actually help it to come up with a variety of content. It currently has more than 24 million monthly active users.

The Zacks Consensus Estimate for 2020 earnings has moved 0.7% north to $4.10 per share over the past 30 days. ViacomCBS shares have lost 31.5% year to date.

Price and Consensus: VIAC

 

News Corporation:  The company continues to witness a rise in paid digital subscriptions. Also, e-book sales have been growing. Moreover, with the resumption of live sports, advertising trends are likely to improve. To mitigate the impact of COVID-19, management has been taking steps to lower costs. In order to centralize a number of functional areas, the company launched a Shared Services program. The company is also well positioned to grab opportunities generated from technology sharing across geographies and businesses, and bundle offerings of enriched content to consumers and advertising partners.

News Corporation’s shares have lost 3.4% year to date. The Zacks Consensus Estimate for this Zacks Rank #2 company’s fiscal 2021 earnings has been steady at 21 cents per share over the past 30 days.

Price and Consensus: NWSA

 

Lionsgate: The company is expected to benefit from a spurt in viewership of Starz’s content across all platforms as well as an increase in subscriber base of its OTT platforms as media consumption surged amid the coronavirus outbreak. Further, increased home-entertainment and library revenues, driven by strong demand for content and revenues, is a key catalyst. The Starz acquisition has helped Lionsgate strengthen its competitive position and maximize returns along with building a diversified portfolio for long-term growth.

Moreover, with people confined to their homes, the coronavirus outbreak has increased television and streaming consumption around the globe. This trend is benefiting Starz, which has experienced an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services. Moreover, rising home entertainment demand bodes well for this Zacks Rank #2 company’s top line.

Lionsgate’s shares have lost 31.8% year to date. The consensus mark for its fiscal 2021 earnings has been steady at 77 cents per share over the past 30 days.

Price and Consensus: LGF.A

 

 

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ViacomCBS Inc. (VIAC) : Free Stock Analysis Report
 
News Corporation (NWSA) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Lions Gate Entertainment Corp. (LGF.A) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
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