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 platforms, streaming services and other exhibitors.
The companies are heavily dependent 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 investment 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 advancement 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 AI tools, production houses are getting a better understanding of user preference. This is helping them produce content that strikes a chord with users.
- Companies involved in content creation are looking to distribute their content through over-the-top 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 and Virtual Reality 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 Dull 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 #174, which places it in the bottom 29% 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 gloomy 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 losing confidence in this group’s earnings growth potential. Since Jan 31, 2019, estimates for the current year have widened from a loss of 3 cents to a loss of 11 cents.
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 Lags S&P 500 & Sector
The Zacks Film and Television Production and Distribution industry has underperformed both the Zacks S&P 500 composite as well as its own sector in the past year.
The stocks in this industry have collectively lost 22% as against the S&P 500’s increase of 3% and the Zacks Consumer Discretionary sector’s return of 1.2%.
One Year Price Performance
Industry’s Current Valuation
On the basis of the 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 1.29X versus the S&P 500’s 3.15X and the sector’s 2.57X.
Over the past five years, the industry has traded as high as 2X and as low as 0.93X, recording a median of 1.35X, as the charts below show.
Price-to-Sales Ratio (TTM)
Slow market growth rate in the near term could weigh on the prospects of the Film and Television Production and Distribution industry. Nevertheless, increasing demand for blockbuster movies and TV shows coupled with evolution of distribution platforms due to increased Internet penetration should continue to drive growth.
Here we present a couple of top-ranked stocks that are well positioned to grow in the near term.
IMAX Corporation (IMAX - Free Report) : Headquartered in Mississauga, Canada, IMAX sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has returned 17.5% on a year-to-date basis and has average four-quarter positive earnings surprise of 34.3%.
The Zacks Consensus Estimate for IMAX’s current-year earnings per share has increased 9.6% to 91 cents over the past 30 days.
Price and Consensus: IMAX
iQIYI, Inc. (IQ - Free Report) : Haidian, China-based iQIYI has returned 25.7% on a year-to-date basis. The company carries a Zacks Rank #2 (Buy) and has average four-quarter positive earnings surprise of 14.9%.
The Zacks Consensus Estimate for iQIYI’s current-year bottom line has narrowed down from a loss of $1.64 to $1.38 over the past 30 days.
Price and Consensus: IQ
Moreover, here is a stock that investors can hold on to in the near term.
News Corporation (NWSA - Free Report) : NY-based News Corporation has returned 3.8% year to date. The company has a Zacks Rank #3 (Hold) and average four-quarter positive earnings surprise of 182.3%.
The Zacks Consensus Estimate for the company’s current-year earnings has remained unchanged at 38 cents per share over the past 30 days.
Price and Consensus: NWSA