Back to top

Image: Bigstock

Sony vs Dolby Digital: Which A/V Stock is Worth a Buy Now?

Read MoreHide Full Article

Most investors look for companies and industries that consistently yield high returns over a considerable time period. Currently, the Consumer Discretionary space is grabbing the limelight, owing to an improving economy, along with a declining unemployment rate, improving consumer spending and enhanced consumer confidence. Moreover, expectedly slow and gradual interest rate hikes by the Federal Reserve ensures enough time for consumers to absorb them.

Each of these factors influences consumers’ willingness to spend, and their favorable trends bode well for this sector, which manufactures products that consumers purchase because they want to and not just they need to.

Today we will look at two companies in consumer discretionary space – Sony Corporation and Dolby Laboratories (DLB - Free Report) . At present, Sony has a market capitalization of $61.88 billion, while that of Dolby is $6.45 billion. Let's see how these two companies fare on some key metrics.

Trailing 12-Month Return

In the last 12 months, Sony’s stock has gained 61.9%, much better than Dolby’s return of 35.4%

Sony’s return also trumped the industry’s increase of 58.0% during the same time frame, while Dolby underperformed.

Valuation

Although both the companies are trading at a discount compared with the industry’s multiple of 58.2, Sony’s stock is presently trading at a forward P/E multiple of 26.9, which is lower than Dolby, which is trading a multiple of 30.4.

Rank & Sub-industry Ranking

While both Sony and Dolby currently carry a Zacks Rank #3 (Hold), the industry is ranked #69 out of the 265 industries in Zacks coverage. The Audio Video Production industry currently falls within the top 26% of the 265 different industries tracked by Zacks. Thus, any positive industry developments should benefit both companies.

Earnings Trend

Favorable jobs scenario as well as enhanced consumer confidence has been driving the performance of these consumer and industrial electronic equipment manufacturers.

Sony has outperformed the Zacks Consensus Estimate in three of the trailing four quarters with an average earnings beat of 47.3%. Dolby is also riding high on impressive market traction of offerings and delivered positive earnings surprises in the last four quarters, with an average earnings beat of 44.3%.

Estimate Revisions

For 2017, Sony witnessed two upward estimate revisions versus none downward in the last 60 days, increasing the Zacks Consensus Estimate from $2.36 to $2.87, which depicts decidedly bullish analyst sentiment. In contrast, Dolby’s Zacks Consensus Estimate for 2017 declined from $2.25 to $2.24 in the same time frame, due to two upward and downward estimate revisions each, indicating somewhat bearish analyst outlook.

VGM Score

Since both these consumer and industrial electronic equipment manufacturers are fighting neck and neck, let us fall back on our VGM score. This score allows investors to eliminate the negative aspects of stocks and pick the winners.

Sony is the clear winner here, as it currently boasts a VGM Score of A, while Dolby has a VGM score of D.

Other Key Factors

Sony believes positive industry trends will fuel growth of most of its business segments. Music sales are predicted to be driven by higher-than-expected Visual Media and Platform sales as well as Recorded Music sales. Additionally, Sony remains confident that it will be able to achieve the targets of its mid-range plan set in February 2015, where it expects operating income to go beyond ¥500 billion yen and 10% or higher Return on Equity.

Dolby’s three impressive projects, namely, Dolby Vision, Dolby Voice and Dolby Cinema, are likely to accelerate growth going forward. Presently, the company is focusing on bolstering its leadership position in audio solutions and bringing new audiovisual experiences to market to grab a greater market share. In terms of fortifying leadership position, Dolby has maintained long-standing partnerships with industry frontrunners.

Final Call

Even though the companies hold the same rank, Sony enjoys a lead in terms estimate revisions, valuations and investor return while Dolby boasts a better earnings trend.

Moreover, the scales tip in favor of Sony when it comes to the VGM score.

Stocks to Consider

Investors interested in the same sector may consider Drive Shack Inc. and GoPro, Inc. (GPRO - Free Report) . While Drive Shack sports a Zacks Rank #1 (Strong Buy), GoPro carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Dolby Laboratories (DLB) - free report >>

GoPro, Inc. (GPRO) - free report >>

Published in