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 production and distribution of entertainment content to theaters, TV networks, video-on-demand (VOD) platforms, streaming services and other exhibitors.
The companies are heavily reliant on box office performance of their films, both domestically and internationally, the number of film releases and ratings of TV shows.
Here are the three major themes in the industry:
- The need for investments in original content production is on the rise to attract movie goers as well as streaming and on-demand video service providers. Factors such as binge viewing, increased Internet penetration and advancements in mobile, video, and wireless technologies have increased small screen viewing. In order to keep pace with new consumption patterns, industry participants are turning to digital content distribution. Emergence of digital capabilities is making consumer data easily available to companies. With the use of artificial intelligence (AI) tools, production houses are getting a better understanding of user preference. This is helping them to produce content that strikes a chord with users.
- Companies involved in content creation are looking to distribute their content through over-the-top (OTT) services to leverage the popularity of their franchises/brands. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies, primarily involved in distribution, are increasingly producing original and award-winning content to reduce licensing costs and dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.
- 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 are expected to enhance the viewing experience further. Increasing adoption of Augmented Reality (AR) and Virtual Reality (VR) technologies bodes well for industry participants. However, 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 #24, which places it in the top 10% 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 Jun 30, 2018, estimates for the current year have moved up from a loss of 48 cents to earnings of $1.52.
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 Film and Television Production and Distribution 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 13.2% as against the S&P 500’s decline of 6.7% and the Zacks Consumer Discretionary sector’s decline of 9.7%.
One Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 2.17X versus the S&P 500’s 3.03X and the sector’s 2.57X.
Over the past five years, the industry has traded as high as 2.34X and as low as 1.41X, recording a median of 1.92X, as the charts below show.
Price-to-Sales Ratio (TTM)
Increasing demand for blockbuster movies and TV shows coupled with evolution of distribution platforms due to increased Internet penetration should continue to drive growth. Additionally, technological upgrades are likely to boost customer experience and engagement levels, which is a positive.
Here we present a couple of top-ranked stocks:
News Corporation (NWSA - Free Report) : NY-based News Corp. has lost 28.6% in the past year. However, the company has a Zacks Rank #1 (Strong Buy) and average four-quarter positive earnings surprise of 35.75%. The Zacks Consensus Estimate for the company’s current-year EPS has remained unchanged at 19 cents per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NWSA
World Wrestling Entertainment, Inc. (WWE - Free Report) : Stamford, CT-based World Wrestling Entertainment Fox has returned 145.5% in the past year. The company has a Zacks Rank #2 and average four-quarter positive earnings surprise of 24.41%. The Zacks Consensus Estimate for the company’s current-year EPS has remained unchanged at 29 cents per share over the past 30 days.
Price and Consensus: WWE
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