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3 Stocks to Watch From the Prospering Entertainment Industry

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The Zacks Film and Television Production and Distribution industry is benefiting from a spike in demand for digital entertainment fueled by capacity and operational limitations in movie theaters, theme parks and cruise lines and continued restrictions on travel. Increased consumption of media, music and news over the web due to the pandemic-induced lockdowns and shelter-at-home guidelines has been a key catalyst for industry participants like ViacomCBS , News Corporation (NWSA - Free Report) and Lionsgate (LGF.A - Free Report) . Steady recovery in the advertising spending environment and resumption of production pipelines bode well for film and television production companies.

Industry Description

The Zacks Film and Television Production and Distribution industry comprises companies involved in film and TV production, distribution and exhibition. The main activities of the industry participants include the production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors. Imax offers entertainment technology, and specializes in motion picture technologies and presentations. Industry participants produces and distributes motion pictures for theatrical and straight-to-video release besides TV programming. These players are heavily dependent on the box-office performance of their films, both domestically and internationally, the number of film releases and ratings of TV shows.

3 Film and Television Production Industry Trends to Watch Out For

Over-the-Top Services Gaining Prominence: Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies are increasingly producing original and award-winning feed to reduce licensing costs and excessive dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.

Binge-Watching Driving Consumption: Factors such as binge watching, deepening Internet penetration and advancement in mobile, video, and wireless technologies have got viewers glued to small screens. In order to keep pace with new consumption patterns, industry participants are turning to digital content distribution. The emergence of digital capabilities is making consumer data easily available to companies. With the use of AI tools, production houses are gaining a better understanding of user preference. This is helping them produce content that strikes a chord with viewers. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streaming players.

Technological Advancement Aids Prospects: Exhibitors are turning to highly efficient and cost-effective technologies like laser-based projection systems to enhance image quality and the entire movie experience. Additionally, the use of technologies like motion seating, immersive audio systems and interactive movies among others is expected to enhance the viewing experience. The increasing adoption of AR and VR technologies bodes well for industry participants. However, the evolution of alternative motion picture distribution channels such as home video, pay-per-view, streaming services, video-on-demand, Internet and syndicated and broadcast television is hurting exhibitors.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Film and Television Production and Distribution industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #104, which places it in the top 41% 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.

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 Lags S&P 500, Beats Sector

The Zacks Film and Television Production and Distribution industry has underperformed the Zacks S&P 500 composite but beat its own sector in the past year.

The stocks in this industry have collectively gained 3.9% compared with the S&P 500’s rally of 32.4% and the Zacks Consumer Discretionary sector’s rise of 1.7% over the same time frame.

One Year Price Performance

Industry's Current Valuation

On the basis of the trailing 12-month price-to-sales (P/S), a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 1.31X compared with the S&P 500’s 4.72X and the sector’s 2.35X.

Over the past five years, the industry has traded as high as 2.11X and as low as 0.55X, recording a median of 1.51X as the chart below shows.

Trailing 12-Month Price-to-Sales (P/S) Ratio

3 Film & Television Stocks to Watch Right Now

News Corporation: The company is benefiting from prudent strategic efforts, which include the ongoing digital transformation of the business, and investments in the Digital Real Estate Services, Dow Jones and Book Publishing segments.

Recovery in the print and digital advertising market from last year’s adverse impacts of the COVID-19 pandemic is driving results. News Corporation has been witnessing a rapid expansion at Move. It has been diversifying revenue streams through strategic acquisitions and operational enhancement.

News Corporation is well positioned to grab opportunities generated from technology sharing across geographies and businesses, and bundled offerings of enriched content to consumers and advertising partners.

News Corporation’s shares have gained 23.1% year to date. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s fiscal 2021 earnings has increased 14% to 65 cents per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: NWSA

 

ViacomCBS: Shares of this Zacks Rank #3 (Hold) company have declined 9.7% year to date. Competition in the streaming space from the likes of Netflix and Disney+ is an overhang. Also, a leveraged balance sheet is a concern.

However, ViacomCBS’ solid cable network portfolio is a major growth driver. Growing traction of Showtime, BET, Comedy Central and Nickelodeon is driving top-line growth. Higher Affiliate, domestic-streaming and digital-video revenues are major positives. Also, the addition of Pluto TV to ViacomCBS’ portfolio of streaming services is a key catalyst. Paramount+, which features a massive content catalog of episodes, movie titles and live sporting events has gained significant traction within a short span of time.

The Zacks Consensus Estimate for ViacomCBS’ fiscal 2021 earnings has declined 2.8% to $3.77 per share over the past 30 days.

Price and Consensus: VIAC

 

Lionsgate: The company is expected to benefit from a spurt in viewership of Starz’s content across all platforms, as well as from an increase in the subscriber base of its OTT platforms on higher media consumption amid the coronavirus outbreak.

The launch of consumer OTT app Lionsgate Play in India is a positive for Lionsgate. The resumption of film and television production is also expected to drive growth.

The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2021 earnings has been steady at 84 cents per share over the past 30 days. Lionsgate’s shares have returned 43.8% year to date.

Price and Consensus: LGF.A


 



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