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3 Media Stocks to Watch From a Prospering Industry
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The Zacks Media Conglomerates industry is benefiting from the change in consumer preference for over-the-top (OTT) content. Industry participants like Disney (DIS - Free Report) , Paramount Global (PARA - Free Report) and Madison Square Garden Entertainment (MSGE - Free Report) have been investing heavily to develop original and fresh content, including music and shows, to attract and retain subscribers, particularly Gen Z and millennials. The availability of a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings to attract consumers, is aiding industry players’ prospects. However, the industry is suffering from a decline in ratings for broadcast television, as well as reduced demand for home entertainment sales of theatrical content. Sluggish spending by advertisers due to raging inflation and a higher interest rate continues to be a concern.
Industry Description
The Zacks Media Conglomerates industry primarily comprises companies that develop and distribute shows, movies, music, educational content and digital learning services. The companies offer entertainment, travel and consumer products. The media companies are riding on shifting consumer preference for OTT content, be it subscription-based video on-demand or advertising-supported. Advertising is a significant revenue source for media industry participants. Metaverse is a budding market for media companies. Moreover, subscription prices have room for growth due to the expanding subscriber base. However, media industry participants are suffering due to the industry-wide decline in ratings for broadcast television, reduced demand for home entertainment sales of theatrical content and increasing cord-cutting.
3 Trends Shaping the Future of the Media Industry
Original Content Driving Growth: Media companies’ ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally consumed platform, provides increased scope for target-based advertising. The growing consumer preference for subscription services instead of linear pay-TV and rental or outright purchase has compelled the industry players to alter their business models. Media companies are innovating original content to attract subscribers.
High-Speed Internet Demand Acting as the Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided media industry participants. Improving Internet speed is fueling the demand for high-quality videos and the trend of binge-watching. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth.
Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is witnessing the rapid evolution of distribution platforms and embracing new players and advanced technologies. The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it tricky for traditional media television companies to maintain their viewer base.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #44, which places it in the top 17% 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 continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
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 Underperforms Sector, S&P 500
The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Composite over the past year.
The industry has returned 6.5% in the abovementioned period compared with the broader sector’s growth of 13.9%. The S&P 500 has risen 29.4% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 1.06X compared with the S&P 500’s 3.97X and the sector’s 2X.
Over the past two years, the industry has traded as high as 1.73X and as low as 0.78X, with a median of 1.04X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Media Stocks to Watch
Madison Square Garden Entertainment: This Zacks Rank #1 (Strong Buy) company provides live entertainment. The company's portfolio includes New York's Madison Square Garden, The Theater at Madison Square Garden, Radio City Music Hall, and Beacon Theatre and The Chicago Theatre, which showcase a broad range of sporting events, concerts, family shows and special events. In addition, the company features the original production, the Christmas Spectacular Starring the Radio City Rockettes, which has been a holiday tradition for 90 years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company is benefiting from an increase in the number of concerts and other live entertainment and sporting events held at the company's venues. The top-line growth is gaining from entertainment and sports bookings business, which showcases a broad range of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually. Its commitment to creating its MSG Sphere technology makes it a technological leader in the live performance sector.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has remained steady at 79 cents per share over the past 30 days. MSGE’s shares have risen 17.6% year to date.
Price and Consensus: MSGE
Disney: This Zacks Rank #3 (Hold) company has assets that include movies, television shows and theme parks. Disney is benefiting from a solid revival in its international theme park and resort businesses. Recent attractions like the Frozen theme land at Hong Kong Disneyland and Walt Disney Park in Paris, as well as the Zootopia theme land at Shanghai Disney, are expected to boost the prospects of the theme park business. Disney’s iconic California theme park is poised for a magical transformation with significant investment amounting to at least $1.9 billion over the next decade.
Disney’s focus on sports streaming, particularly Live Sports on ESPN+, is expected to attract more subscribers. The renewal of the MLB sports rights deal through 2028 and the agreement with Spanish club football’s first division, La Liga, further strengthened the portfolio of the company’s sports content.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved north a penny to $4.57 per share over the past 30 days. DIS’ shares have risen 24% year to date.
Price and Consensus: DIS
Paramount Global: This Zacks Rank #3 company is a global media, streaming and entertainment provider, offering content through well-known brands like CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Paramount+ and Pluto TV. It also operates Paramount Pictures.
Paramount is benefiting from steady viewership for its streaming services, boosted by the strong adoption of Paramount+ and global viewing hours of Pluto TV. It has made waves in the media industry with a binding agreement to sell its 13% ownership stake in Viacom18, a prominent Indian TV and streaming company, to Reliance Industries for a substantial $517 million. PARA's decision to divest its stake in Viacom18 aligns with its broader strategy to strengthen its financial position. With a long-term debt of $14.6 billion by the end of 2023, the company has been actively seeking avenues to streamline its balance sheet.
The Zacks Consensus Estimate for the company’s 2024 earnings has moved north 5.4% to $1.17 per share over the past 30 days. PARA’s shares have lost 24.2% year to date.
Price and Consensus: PARA
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3 Media Stocks to Watch From a Prospering Industry
The Zacks Media Conglomerates industry is benefiting from the change in consumer preference for over-the-top (OTT) content. Industry participants like Disney (DIS - Free Report) , Paramount Global (PARA - Free Report) and Madison Square Garden Entertainment (MSGE - Free Report) have been investing heavily to develop original and fresh content, including music and shows, to attract and retain subscribers, particularly Gen Z and millennials. The availability of a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings to attract consumers, is aiding industry players’ prospects. However, the industry is suffering from a decline in ratings for broadcast television, as well as reduced demand for home entertainment sales of theatrical content. Sluggish spending by advertisers due to raging inflation and a higher interest rate continues to be a concern.
Industry Description
The Zacks Media Conglomerates industry primarily comprises companies that develop and distribute shows, movies, music, educational content and digital learning services. The companies offer entertainment, travel and consumer products. The media companies are riding on shifting consumer preference for OTT content, be it subscription-based video on-demand or advertising-supported. Advertising is a significant revenue source for media industry participants. Metaverse is a budding market for media companies. Moreover, subscription prices have room for growth due to the expanding subscriber base. However, media industry participants are suffering due to the industry-wide decline in ratings for broadcast television, reduced demand for home entertainment sales of theatrical content and increasing cord-cutting.
3 Trends Shaping the Future of the Media Industry
Original Content Driving Growth: Media companies’ ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally consumed platform, provides increased scope for target-based advertising. The growing consumer preference for subscription services instead of linear pay-TV and rental or outright purchase has compelled the industry players to alter their business models. Media companies are innovating original content to attract subscribers.
High-Speed Internet Demand Acting as the Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided media industry participants. Improving Internet speed is fueling the demand for high-quality videos and the trend of binge-watching. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth.
Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is witnessing the rapid evolution of distribution platforms and embracing new players and advanced technologies. The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it tricky for traditional media television companies to maintain their viewer base.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #44, which places it in the top 17% 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 continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
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 Underperforms Sector, S&P 500
The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Composite over the past year.
The industry has returned 6.5% in the abovementioned period compared with the broader sector’s growth of 13.9%. The S&P 500 has risen 29.4% during the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 1.06X compared with the S&P 500’s 3.97X and the sector’s 2X.
Over the past two years, the industry has traded as high as 1.73X and as low as 0.78X, with a median of 1.04X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Media Stocks to Watch
Madison Square Garden Entertainment: This Zacks Rank #1 (Strong Buy) company provides live entertainment. The company's portfolio includes New York's Madison Square Garden, The Theater at Madison Square Garden, Radio City Music Hall, and Beacon Theatre and The Chicago Theatre, which showcase a broad range of sporting events, concerts, family shows and special events. In addition, the company features the original production, the Christmas Spectacular Starring the Radio City Rockettes, which has been a holiday tradition for 90 years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company is benefiting from an increase in the number of concerts and other live entertainment and sporting events held at the company's venues. The top-line growth is gaining from entertainment and sports bookings business, which showcases a broad range of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually. Its commitment to creating its MSG Sphere technology makes it a technological leader in the live performance sector.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has remained steady at 79 cents per share over the past 30 days. MSGE’s shares have risen 17.6% year to date.
Price and Consensus: MSGE
Disney: This Zacks Rank #3 (Hold) company has assets that include movies, television shows and theme parks. Disney is benefiting from a solid revival in its international theme park and resort businesses. Recent attractions like the Frozen theme land at Hong Kong Disneyland and Walt Disney Park in Paris, as well as the Zootopia theme land at Shanghai Disney, are expected to boost the prospects of the theme park business. Disney’s iconic California theme park is poised for a magical transformation with significant investment amounting to at least $1.9 billion over the next decade.
Disney’s focus on sports streaming, particularly Live Sports on ESPN+, is expected to attract more subscribers. The renewal of the MLB sports rights deal through 2028 and the agreement with Spanish club football’s first division, La Liga, further strengthened the portfolio of the company’s sports content.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved north a penny to $4.57 per share over the past 30 days. DIS’ shares have risen 24% year to date.
Paramount Global: This Zacks Rank #3 company is a global media, streaming and entertainment provider, offering content through well-known brands like CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Paramount+ and Pluto TV. It also operates Paramount Pictures.
Paramount is benefiting from steady viewership for its streaming services, boosted by the strong adoption of Paramount+ and global viewing hours of Pluto TV. It has made waves in the media industry with a binding agreement to sell its 13% ownership stake in Viacom18, a prominent Indian TV and streaming company, to Reliance Industries for a substantial $517 million. PARA's decision to divest its stake in Viacom18 aligns with its broader strategy to strengthen its financial position. With a long-term debt of $14.6 billion by the end of 2023, the company has been actively seeking avenues to streamline its balance sheet.
The Zacks Consensus Estimate for the company’s 2024 earnings has moved north 5.4% to $1.17 per share over the past 30 days. PARA’s shares have lost 24.2% year to date.
Price and Consensus: PARA