Media companies are enjoying a terrific ride in 2019, courtesy a growing subscriber base and improving advertising revenues. This is reflected in the solid performance of the Invesco Dynamic Media ETF (PBS) that has returned 13.6% on a year-to-date basis as compared with the S&P 500’s gain of 12%.
Expanding original and fresh content, rapid adoption of alternative distribution channels for broadcast and cable programming, strong demand for high-quality video, and the increasing trend of binge viewing are driving growth.
Additionally, the strong demand for virtual multichannel video programming distributor (vMVPD) services or “skinny bundles” is a key catalyst. These services, which are available through the Internet, often contain fewer channels than a traditional subscription, and therefore, are cheaper than traditional offerings.
Moreover, the momentum in advertising revenues is expected to continue, owing to major events like European Games, Special Olympics and higher political ad spending related to the U.S. state elections. This bodes well for media companies.
Content & Streaming Set to Play Key Roles
Media companies are investing heavily on developing original and fresh content in a bid to keep pace with streaming service providers like Netflix and Hulu. These firms are spending more on developing high-quality entertainment content and signing up Hollywood celebrities to boost the values of shows. Further, development of regional content to attract local advertisers is gaining momentum.
Also, an expanding total addressable market (TAM) on the back of growing number of baby boomers presents a unique opportunity to media companies. Per an EY report, for the first time in human history, the world’s population aged 65 and older will surpass the number of children under the age of five, by 2020. As this affluent and tech-savvy demography enjoys the most leisure time, media firms are expected to gain by addressing their entertainment needs.
Moreover, a number of media companies have either launched a streaming app or are planning to do so over the next 18 to 24 months. The list includes not only media giants like Comcast CMCSA, Disney DIS, Viacom and Discovery but also technology and telecommunication giants like Apple and AT&T.
Media, Tech and Telecom Convergence Positive
Eventually, media, tech and telecom are expected to converge. Tech and telecom companies are realizing that their presence within media is important as consumers are spending a significant amount of time there. AT&T’s acquisition of Time Warner, completed last year, was a game changer in this regard. Notably, Forrester expects AT&T to acquire Roku this year, which will further intensify competition in the media space.
The convergence is also beneficial for companies like Comcast and Disney as these are getting additional platforms to distribute their content and reach a huge audience within a short span of time. Media companies are leveraging artificial intelligence (AI) and machine learning to develop content for targeted audience.
However, the fight for ad dollars is likely to intensify as tech and telecom companies expand their presence in the media space through consolidation. Nonetheless, media companies like Comcast, Disney and Viacom are well positioned to fend off competition. Comcast, Disney and Viacom have also strengthened their media footprint through the acquisition of Sky, Twenty First Century Fox entertainment assets, and PlutoTV, respectively.
Picking the Winning Stocks
With the help of the Zacks Stock Screener, we pick four media stocks that are expected to outperform the market based on the aforesaid factors. Apart from having strong fundamentals, these stocks either flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Moreover, all four stocks have outperformed the S&P 500 on a year-to-date basis.
Year-to-date Price Performance
Atlanta, GA-based Cumulus Media CMLS flaunts a Zacks Rank #1, at present. The company’s fourth-quarter earnings beat the Zacks Consensus Estimate by 68.6%.
Cumulus owns and operates 433 stations, broadcasting in 88 U.S. media markets and approximately 8,000 broadcast radio stations affiliated with its Westwood One network. The company emerged from Chapter 11 bankruptcy in June 2018.
Cumulus’ focus on expanding its digital business that includes local, digital marketing services, streaming solutions and podcast network is a key catalyst. The Zacks Consensus Estimate for its 2019 earnings nearly moved 5% north to $3.80, over the past 30 days.
Philadelphia, PA-based Comcast has a Zacks Rank #2, at present. The company delivered average positive earnings surprise of 5.4%, over the trailing four quarters.
Comcast continues to benefit from stellar growth in residential high-speed Internet customers. In addition, the company’s Xfinity Mobile is now used by more than one million customers. Its content strength is depicted by the fact that Green Book won the Academy Award for Best Picture this year.
The Zacks Consensus Estimate for its current-year earnings moved up by a couple of cents to $2.75, over the past 30 days.
Calgary-based Shaw Communications SJR generated average positive earnings surprise of 29%, in the last four quarters. Shaw also carries a Zacks Rank #2.
Shaw Communications is benefiting from robust performance of the company’s wireless segment. Moreover, deployment of 700 MHz spectrum will further improve customer experience by providing far-reaching coverage and stronger indoor wireless reception. The company continues to expand its footprint across Canada, which is a key catalyst.
The Zacks Consensus Estimate for its 2019 earnings has remained steady at $1.03, over the past 30 days.
McLean, Virginia-based World Wrestling Entertainment WWE came up with average positive earnings surprise of 32.5%, in the preceding four quarters. The stock currently carries a Zacks Rank #2.
The company is gaining from its solid focus on increasing original content, subscriber growth, rise in TV rights fees and monetization of video content across digital and direct-to-consumer (DTC) platforms.
The Zacks Consensus Estimate for its ongoing year’s earnings has remained ucnhanged at $1.24, over the past 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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The Walt Disney Company (DIS) : Free Stock Analysis Report
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