Back to top

Image: Bigstock

3 Broadcast Radio & TV Stocks to Buy in a Challenging Industry

Read MoreHide Full Article

The coronavirus pandemic-led macroeconomic downturn has impacted the Zacks Broadcast Radio and Television industry negatively. The increasing rate of cord-cutting and significant delays in production of movies and shows have cast a shadow on the industry’s prospects.

Nonetheless, Roku, Inc. (ROKU - Free Report) , Fox Corporation (FOXA - Free Report) and TEGNA (TGNA - Free Report) are a few industry participants set to benefit from their diversified content offerings, which is original, regional, short and suitable for small screens (smartphones and tablets), increased content consumption and improved Internet speed and penetration, and technological advancement.
Industry Description

The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, non-fiction and musical content over television, radio and digital media platforms. These companies majorly derive revenues from the sale of advertising slots as well as subscriptions.

4 Broadcast Radio and Television Industry Trends to Watch Out For

Shift in Consumer Preference a Key Catalyst: To adapt to the changes in the industry, companies like Fox, ViacomCBS (VIAC - Free Report) and Discovery (DISCA - Free Report) are coming up with varied content for over-the-top (OTT) services in addition to linear TV. Additionally, they are adding OTT services to their content portfolio. In January, Discovery entered the online streaming space with the launch of discovery+, which is available in the United States on Amazon Fire Tv, Roku and other platforms. The availability of streaming services on a wide range of platforms is helping such services easily reach a global audience. It is also helping them to  expand their international user base, which in turn, attracts advertisers to their platforms, thereby boosting ad revenues. Moreover, the use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit advertisers and industry participants. Also, major leagues and events such as NFL, NHL, Olympics, European Games, EPL and elections attract significant ad dollars. However, cancellation or postponement of sports events due to the coronavirus outbreak is a major concern.

Increased Digital Viewing Aids Content Demand: Many industry participants who are either launching their own OTT services or acquiring other OTT services are banking on user insights to deliver the right content. Increased digital viewing is making consumer data easily available to companies, thereby allowing them to apply AI and machine-learning techniques to create/procure targeted content. The move not only boosts user engagement but also lets industry participants raise prices of their services at appropriate time without the fear of losing subscribers.

Coronavirus Hurts Production and Ad Demand: Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes and heightened fears of a prolonged recession. The pandemic has bumped up unemployment, which is expected to increase cord-cutting. Moreover, postponement of production threatens to choke supply of new content. Additionally, advertising is a major source of revenues for this industry, which has been badly hit by the coronavirus. Lower ad demand and reduced spending are expected to hurt the top line in the near term. Moreover, the industry players are facing stiff competition from tech companies like Facebook, Twitter, Alphabet-division Google and Amazon for ad-dollars. This has been a major impediment for growth, which is expected to continue marring prospects.

Low-Priced Skinny Bundles Hurt Revenues: Increase in cord cutting has forced industry participants to offer “skinny bundles.” These services, which are available through the Internet, often contain fewer channels than a traditional subscription and therefore are cheaper. The move is in line with changing consumer viewing dynamics as growth in Internet penetration and advancements in mobile, video and wireless technologies have boosted small-screen viewing. The alternative services are expected to keep users glued to their platforms, thereby increasing the need to produce more content. Moreover, coronavirus-led lockdowns and shelter-in-place guidelines that compelled more people to stay at home have significantly increased viewership and audience base. However, the low-priced skinny bundles are likely to dampen top-line growth.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #172, which places it in the bottom 32% 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 weak 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 position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Since Mar 31, 2020, the industry’s earnings estimates for 2021 have moved down 10.6%.

Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Beats Sector and S&P 500

The Zacks Broadcast Radio and Television industry has outperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 Index over the past year.

The industry has gained 40.1% over this period compared with the S&P 500’s increase of 18.5% and the broader sector’s rally of 18.2%.

One Year Price Performance

Industry’s Current Valuation

On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing Broadcast Radio and Television stocks, the industry is currently trading at 27.14X versus the S&P 500’s 16.64X and the sector’s 13.02X.

Over the past five years, the industry has traded as high as 33.14X and as low as 18.14X, recording a median of 22.72X, as the chart below shows.

EV/EBITDA Ratio (TTM)

3 Broadcast Radio and Television Stocks to Watch

TEGNA: This McLean, VA-based Media Company offering high-quality television programming and digital content has been benefiting from a stable subscriber base and higher rates. Solid contribution from acquisitions, a continued spike in subscription revenues and strong spending on political advertisements are major drivers of this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.

The focus on local content is driving subscription revenues from traditional cable and satellite operators as well as OTT providers. TEGNA’s buyouts of local TV stations that comprise the Big Four affiliates along with aggressive spending on political ads are likely to aid its top line in 2021.

The Zacks Consensus Estimate for 2021 earnings has moved up 5.1% to $2.28 over the past 30 days. The stock has gained 25.6% year to date.

Price and Consensus: TGNA

Roku: Headquartered in Los Gatos, CA, this Zacks Rank #2 (Buy) company has been benefiting from the popularity of its free, ad-supported steaming platform. The Roku Channel is also expected to aid active accounts growth and attracted advertisers to the platform in the near term. Markedly, the stock has gained 30.9% year to date.

Moreover, growth in streaming hours is expected to boost TV streaming advertising on Roku’s platform. As of Dec 31, 2020, the company had 51.2 million active accounts. Moreover, viewers streamed an estimated 17 billion hours in the fourth quarter for a total of 58.7 billion hours in 2020, an increase of 55% year over year for the quarter and the full year.

However, softness in advertising revenues due to video ad campaign cancellations or delayed starts from categories like travel, theatrical and automotive is an overhang.

Notably, the Zacks Consensus Estimate for loss in 2021 has remained steady at 78 cents per share over the past 30 days.

Price and Consensus: ROKU

Fox Corporation : Headquartered in New York, Fox is a news, sports and entertainment content provider. It became a standalone, publicly-traded company on Mar 21, following the merger of Disney and Twenty-First Century Fox, Inc. The company has a Zacks Rank #2.

Robust adoption of Fox News and Fox Business Network (FBN) is expected to drive user base in the near term.

The company generates a major portion of advertising revenues from live programming, which is relatively immune to the rapidly growing competition from subscription-based video-on-demand services. Also, increasing affiliate-fee revenues are expected to drive the top line. Markedly, the stock has gained 12.3% year to date.

However, decline in the local advertising market as a result of the coronavirus outbreak is an overhang.

The Zacks Consensus Estimate for 2021 earnings has moved up 2.7% $2.27 per share over the past 30 days.

Price and Consensus: FOXA

 

More Stock News: This Is Bigger than the iPhone!
 

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.


Click here for the 4 trades >>