The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, non-fiction and musical content over television, radio and digital media platforms. These companies majorly derive revenues from the sale of advertising slots as well as subscriptions.
Rapid proliferation of smartphones, improved Internet speed and penetration, and change in consumer viewing pattern have led to the emergence of streaming video-on-demand services like Netflix (NFLX - Free Report) . This, in turn, has resulted in strong demand for content, which is original, regional, short and suitable for small screens (smartphones and tablets).
Here are the industry’s four major themes:
- Increase in cord cutting has forced industry participants to offer “skinny bundles.” These services, which are available through the Internet, often contain fewer channels than a traditional subscription and therefore, are cheaper. The move is in line with changing consumer viewing dynamics as growth in Internet penetration and advancements in mobile, video and wireless technologies have boosted small-screen viewing. The alternative services are expected to keep users glued to their platforms, thereby increasing the need to produce more content. However, the low-priced skinny bundles hurt top-line growth.
- To adapt to the changes in the industry, companies like Fox Corporation (FOXA - Free Report) , ViacomCBS and Discovery (DISCA - Free Report) are coming up with varied content for over-the-top (OTT) services, in addition to linear TV. Additionally, they are adding OTT services to their content portfolio. This is helping companies easily reach a global audience and expand their international user base. This, in turn, attracts advertisers to their platforms, thereby boosting ad revenues. Moreover, the use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit advertisers and industry participants. Also, major leagues and events such as NFL, NHL, Olympics, European Games, EPL and elections attract significant ad dollars.
- Many industry participants, who are either launching their own OTT services or acquiring other OTT services, are banking on user insights to deliver the right content. Increased digital viewing is making consumer data easily available to companies, thereby allowing them to apply AI and machine learning techniques to create/procure targeted content. The move not only boosts user engagement but also lets industry participants raise prices of their services at appropriate time without the fear of losing subscribers.
- Advertising is a major source of revenues for this industry. However, these companies are facing stiff competition from tech companies like Facebook (FB - Free Report) , Twitter, Alphabet (GOOGL - Free Report) division Google and Amazon for ad-dollars. This has been a major impediment for growth, which is expected to continue marring prospects over the long haul.
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 #99, which places it in the top 39% 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 you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Broadcast Radio and Television industry has underperformed the Zacks S&P 500 composite as well as its own sector in the past year.
The stocks in this industry have collectively returned 6% compared with the S&P 500’s rise of 23.6% and the Zacks Consumer Discretionary sector’s rally of 20.8%.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing Broadcast Radio and Television stocks, the industry is currently trading at 23.06X versus the S&P 500’s 12.12X and the sector’s 12.71X.
Over the past five years, the industry has traded as high as 32.82X and as low as 18.49X, recording a median of 24X, as the chart below shows.
EV/EBITDA Ratio (TTM)
Stocks to Watch
The industry participants are expected to benefit from their diversified customer offerings, increased content consumption and Internet penetration, and technological advancement.
Here we present three stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
McLean, VA-based TEGNA (TGNA - Free Report) is a media company offering high-quality television programming and digital content. The company sports a Zacks Rank #1.
The Zacks Consensus Estimate for 2020 earnings has increased 8.5% to $2.16 per share over the past 30 days.
Price and Consensus: TGNA
Cincinnati, OH-based The E.W. Scripps Company (SSP - Free Report) carries a Zacks Rank #2. The Zacks Consensus Estimate for this media content provider’s 2020 earnings has declined 4.5% to $1.69 per share over the past month.
Price and Consensus: SSP
Headquartered in New York, Fox Corporation is a news, sports and entertainment content provider. It became a standalone, publicly-traded company on Mar 21, following the merger of Disney and Twenty-First Century Fox, Inc. The company has a Zacks Rank #2.
The Zacks Consensus Estimate for fiscal 2020 earnings declined 5% to $2.27 per share over the past 30 days.
Price and Consensus: FOXA