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Cable Television Industry Near-Term Prospects Encouraging
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The Zacks Cable Television industry primarily comprises companies that provide integrated data, video and voice services. The industry participants offer pay-TV services including Internet-based streaming content to a varied group of customers. Some of them also provide equipment that includes satellite dish, digital set-top receivers and remote controls.
Typically, cable companies either build their own network backbone or lease physical access to the network backbone from telecommunications companies. They also purchase licenses to provide subscribers access to cable television channels owned by programmers and distributed over the network backbone. Cable companies also sell advertising on their video channels.
The industry requires high capital expenditure on infrastructure to provide better services to customers. Moreover, the industry is highly regulated with the Federal Communications Commission (FCC) mandating rules.
Here are the industry’s three major themes:
The cable television industry is witnessing a sea change on rapid evolution of distribution platforms as well as entry of players and advanced technologies. The industry-wide trend of declining profitability of residential video services due to increasing programming costs and retransmission fees has made it difficult for traditional companies to survive. Additionally, increasing consumer demand for on-demand content has led to increasing proliferation of streaming service providers like Netflix, Hulu, HBO and Amazon Prime. This has made it particularly difficult for traditional cable television companies to maintain a viewer base. Further, the traditional pay-TV industry is maturing with continous industry consolidation. Moreover, residential voice services are witnessing significant decline in revenues due to increasing usage of wireless voice services.
Growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry participants to alter their business models. Moreover, consumers’ unfavorable disposition, particularly toward advertising, has hit industry participants hard. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. They are also innovating in terms of original content to remain competitive against streaming service providers. Further, improving broadband ecosystem in international markets along with proliferation of smart TVs is anticipated to drive growth.
Cable television is expected to gain from strong political spending due to state elections in 2019. Moreover, the momentum in advertising revenues is expected to continue due to major events such as European Games and Special Olympics. Moreover, the ability to generate ad revenues outside traditional TV platforms such as websites and any digitally consumed platforms provides increased scope for target-based advertising. However, weakness in auto, which is a major ad category, is a concern for the industry. Moreover, the industry faces significant regulatory hurdles related to mergers & acquisitions that can thwart growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary Sector. It carries a Zacks Industry Rank #63, which places it in the top 25% 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.
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 Outperforms Sector, Lags S&P 500
The Zacks Cable Television Industry has outperformed the broader Zacks Consumer Discretionary Sector but lagged the S&P 500 Index over the past year.
The industry has declined 1% over this period compared with the broader sector’s decline of 2.3%. The S&P 500 Index has however risen 2% in the said time frame
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month EV/EBITDA, which is a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 16.08X compared with the S&P 500’s 10.52X. It is also above the sector’s trailing-12-month EV/EBITDA of 14.5X.
Over the last five years, the industry has traded as high as 18.99X, as low as 6.34X and at the median of 10.37X, as the chart below shows.
EV/EBITDA Ratio (TTM)
Bottom Line
Cable companies are trying to fast adapt to the changing landscape of the industry. Focus on providing bundled offerings and on-demand programming content that caters to changing consumer behavior bodes well for industry participants.
Comcast Corporation (CMCSA - Free Report) : This Philadelphia, PA-based global media and technology company has returned 4.6% in the past year. The current Zacks Consensus Estimate for EPS has increased 1.1% over the past 30 days.
Price and Consensus: CMCSA
Cable One (CABO - Free Report) : The stock of this Phoenix, AZ-based broadband communications provider has gained 31.3% in the past year. The consensus EPS estimate for this company has climbed 0.3% over the past 30 days.
Price and Consensus: CABO
WideOpenWest (WOW - Free Report) : This residential and commercial high-speed data, video and telephony services provider has lost 16.4% in the past year. The consensus EPS estimate for this company has remained stable over the past 30 days.
Price and Consensus: WOW
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Image: Bigstock
Cable Television Industry Near-Term Prospects Encouraging
The Zacks Cable Television industry primarily comprises companies that provide integrated data, video and voice services. The industry participants offer pay-TV services including Internet-based streaming content to a varied group of customers. Some of them also provide equipment that includes satellite dish, digital set-top receivers and remote controls.
Typically, cable companies either build their own network backbone or lease physical access to the network backbone from telecommunications companies. They also purchase licenses to provide subscribers access to cable television channels owned by programmers and distributed over the network backbone. Cable companies also sell advertising on their video channels.
The industry requires high capital expenditure on infrastructure to provide better services to customers. Moreover, the industry is highly regulated with the Federal Communications Commission (FCC) mandating rules.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary Sector. It carries a Zacks Industry Rank #63, which places it in the top 25% 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.
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 Outperforms Sector, Lags S&P 500
The Zacks Cable Television Industry has outperformed the broader Zacks Consumer Discretionary Sector but lagged the S&P 500 Index over the past year.
The industry has declined 1% over this period compared with the broader sector’s decline of 2.3%. The S&P 500 Index has however risen 2% in the said time frame
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month EV/EBITDA, which is a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 16.08X compared with the S&P 500’s 10.52X. It is also above the sector’s trailing-12-month EV/EBITDA of 14.5X.
Over the last five years, the industry has traded as high as 18.99X, as low as 6.34X and at the median of 10.37X, as the chart below shows.
EV/EBITDA Ratio (TTM)
Bottom Line
Cable companies are trying to fast adapt to the changing landscape of the industry. Focus on providing bundled offerings and on-demand programming content that caters to changing consumer behavior bodes well for industry participants.
Here, we present three stocks that have a Zacks Rank #2 (Buy) and are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Comcast Corporation (CMCSA - Free Report) : This Philadelphia, PA-based global media and technology company has returned 4.6% in the past year. The current Zacks Consensus Estimate for EPS has increased 1.1% over the past 30 days.
Price and Consensus: CMCSA
Cable One (CABO - Free Report) : The stock of this Phoenix, AZ-based broadband communications provider has gained 31.3% in the past year. The consensus EPS estimate for this company has climbed 0.3% over the past 30 days.
Price and Consensus: CABO
WideOpenWest (WOW - Free Report) : This residential and commercial high-speed data, video and telephony services provider has lost 16.4% in the past year. The consensus EPS estimate for this company has remained stable over the past 30 days.
Price and Consensus: WOW
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Click to get it free >>