The Zacks Audio Video Production industry comprises manufacturers of televisions, speakers, video players and camcorders along with a line of gaming consoles, drones and high-end cameras for individuals and industrial markets all over the world.
These companies offer state-of-the-art audio, imaging, and voice technologies that revolutionize entertainment and communications at theaters, home, work and mobile devices. Some of the firms within this industry also design and manufacture audio and imaging products including digital cinema servers and other products for film production, cinema, television, broadcast and other entertainment industries.
Apart from offering a host of services for supporting theatrical and television production for cinema exhibition, broadcast and home entertainment, the firms serve film studios, content creators, post-production facilities, cinema operators, broadcasters and video game designers. Also, some of the industry participants have presence in the music and image-based software markets globally.
Let’s take a look at the industry’s three major themes:
• Spurred by new innovations and trends, companies in the audio video production space are likely to keep growing at a pace higher than the general economic growth. Notably, the industry players have been experiencing robust growth since October 2017, backed by an improving economy, declining unemployment rate and rising disposable income.
The industry will likely expand to include a mix of cloud and on-premise solutions wherein cloud services will progressively become common for IoT-based visualization solutions, minimizing operational costs and enhancing efficiency.
• Gradual shift from analog to digital technology over the past several years has met the demand for high resolution video, reduced the problems of radio frequency and electromagnetic interference, making audio visual systems more data-network-friendly. Wireless transmission has enabled broadcast of audio video signals via wireless data networks while optimizing the overall productivity of the industry.
• In the United States, smart-connected televisions, microphones and speaker enclosures happen to be the most popular electronic devices among consumers. The growing demand is being stimulated by introduction of technologically sound devices and falling prices, paving the way for the consumer electronics market’s growth on a global scale. However, the U.S. manufacturers of audio and video systems face significant competition from importers of devices from China and Mexico.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #115, which places it at the top 45% 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 promising 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. Looking at the aggregate earnings estimate revisions, it appears that analysts have reposed faith in this group’s earnings growth potential. While the industry’s earnings estimates for the current year have increased 32.2% over the past year, the same for 2019 jumped 2.2%.
Before we present a few audio video production stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outpaces Sector but Lags S&P 500
The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the S&P 500 composite over the past year.
The industry has rallied 4.2% over this period compared with the S&P 500’s rise of 6%. Meanwhile, the broader sector has gained 1.4%.
One-Year Price Performance
Industry’s Current Valuation
Enterprise value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing audio video production stocks. The industry has a trailing 12-month EV/EBITDA of 4.52X compared to the S&P 500’s 10.79X. It is also below the sector’s trailing 12-month EV/EBITDA of 14.97X.
Over the past five years, the industry has traded as high as 10.12X with the median of 5.45X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
The industry is expected to benefit from healthy growth dynamics backed by improving macroeconomic environment, technological innovations and rise in consumer spending. However, profitability of individual companies largely depends on manufacturing efficiency and effective marketing and distribution process.
None of the stocks in the space currently sports a Zacks Rank #1 (Strong Buy). So, we are presenting two stocks with a Zacks Rank #2 (Buy) that investors may consider betting on now. You can see the complete list of today’s Zacks #1 Rank stocks here.
We are also presenting another stock with a Zacks Rank #3 (Hold) that is well positioned to grow.
Sony Corporation (SNE - Free Report) : Shares of this Tokyo, Japan-based audio video production firm have rallied 13.3% in the past year. The Zacks Consensus Estimate for the current fiscal year earnings for this Zacks Rank #2 stock has moved up 9.9% in the past 90 days.
Price and Consensus: SNE
GoPro, Inc. (GPRO - Free Report) : The stock of this San Mateo, CA-based audio video production firm has a long-term earnings growth expectation of 10%. The Zacks Consensus Estimate for the current fiscal year earnings for this Zacks Rank #2 stock has moved up 40.5% in the past six months.
Price and Consensus: GPRO
Sonos, Inc. (SONO - Free Report) : Shares of this Santa Barbara, CA-based audio video production firm have rallied 7.1% in the past month. The consensus estimate for the current fiscal year earnings for this Zacks Rank #3 stock has remained flat in the past 60 days.
Price and Consensus: SONO
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