The Zacks Broadcast Radio and Television industry comprises companies offering television, radio and digital media services over a variety of platforms.
The ever-increasing demand for content and the evolving platforms to consume the same is expected to boost ad dollars for the industry participants. Additionally, the participants are trying to keep users glued to their platforms by providing content that are on demand. This has been lowering churn rate.
Here are the three major themes in the industry:
- The industry participants that generate the majority of their revenues from the sale of advertising slots have benefited from strong demand for political advertising in the United States related to mid-term elections. Also, other major events such as FIFA World Cup and 2018 Winter Olympics paved the way for additional demand for advertising time. We expect the momentum in ad dollars to continue in 2019 due to major events such as European Games, Special Olympics and the U.S. state elections. Moreover, the ability to generate ads outside traditional TV platforms such as websites and any digitally consumed platforms provides increased scope for target-based advertising.
- Increased Internet penetration and advances in mobile, video, and wireless technologies have increased small screen viewing, thereby changing consumer viewing dynamics. Therefore, in order to keep up pace with new consumption patterns and attract customers, industry participants are now turning to virtual multichannel video programming distributor (vMVPD) services, also sometimes called “skinny bundles.” These services, which are available through the Internet, often contain fewer channels than a traditional subscription and therefore are cheaper than traditional offerings.
- Companies are increasingly focusing on providing targeted content to their audience based on factors like demographics, age, gender among others. Increased digital viewing capabilities are making consumer data easily available to the companies, thereby allowing them to apply analytical techniques to create/procure targeted content. Additionally, increasing investments in original content and focus on providing quality entertainment are helping industry participants to lower their churn rate. However, stiff competition from streaming platforms is negatively impacting traditional broadcast and cable programming companies’ subscriber base.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #102, which places it in the top 40% 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.
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 are gaining confidence in this group’s earnings growth potential. Since May 31, 2018, the industry’s earnings estimates for the current year have moved 5.8% upward.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Broadcast Radio and Television industry has outperformed both the Zacks S&P 500 composite as well as its own sector in the past year.
The stocks in this industry have collectively rallied 7.9% as against the S&P 500’s decline of 3.5% and the Zacks Consumer Discretionary sector’s decline of 9%.
One Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio, which is a commonly used multiple for valuing Broadcast Radio and Television stocks, the industry is currently trading at 19.40X versus the S&P 500’s 10.08X and the sector’s 14X.
Over the past five years, the industry has traded as high as 43.01X and as low as 19.40X, recording a median of 26.63X, as the charts below show.
EV/EBITDA Ratio (TTM)
Evolution of distribution platforms, increased content consumption due to ease of access, availability of a variety of content and increased Internet penetration and technological advances should continue to drive the industry’s growth.
None of the stocks in the industry carries a Zacks Rank #1 (Strong Buy). However, we are presenting a few Zacks Rank #2 (Buy) stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gray Television (GTN - Free Report) : Atlanta, GA-based Gray Television has returned 0.8% in the past year. The Zacks Consensus Estimate for the company’s current-year EPS has increased 5.5% to $2.30 over the past 30 days.
Price and Consensus: GTN
Nexstar Broadcasting Group (NXST - Free Report) : Irving, TX-based Nexstar has returned 11.4% in the past year. The consensus estimate for the company’s current-year EPS has declined 0.7% to $8.50 over the past 30 days.
Price and Consensus: NXST
TEGNA Inc. (TGNA - Free Report) : McLean, VA-based TEGNA has lost 11.5% in the past year. The consensus estimate for the company’s current-year EPS has increased 1.1% to $1.80 over the past 30 days.
Price and Consensus: TGNA
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