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Film and Television Stock Outlook Dull Amid Stiff Competition

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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 industry themes:

  • The need for investment in original content is on the rise to attract movie goers amid huge spending by streaming and on-demand video service providers like Netflix (NFLX - Free Report) and Disney (DIS - Free Report) . Factors such as binge viewing, increased Internet penetration and advancement in mobile, video, and wireless technologies have driven 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 gaining a better understanding of user preference. This is helping them produce content that strikes a chord with viewers. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streamers like Netflix.

 

  • Companies involved in content creation are looking to distribute 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 is expected to enhance the viewing experience. Increasing adoption of AR and 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 Drab 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 #230, which places it in the bottom 9% 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 Feb 28, 2019, estimates for the current year have moved 52.3% south.

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 and its own sector in the past year.

The stocks in this industry have collectively lost 14.7% as against the S&P 500’s rise of 21.2%. The Zacks Consumer Discretionary sector has increased 13.8% over the same time frame.

One Year Price Performance

 


Industry’s Current Valuation

On the basis of the trailing 12-month price-to-sales (P/S), which is a commonly used for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 1.06X versus the S&P 500’s 3.55X and the sector’s 2.53X.

Over the past five years, the industry has traded as high as 2.13X and as low as 1.06X, recording a median of 1.69X, as the chart below shows.

Price-to-Sales Ratio (TTM)


 


Bottom Line

Slow market growth rate in the near term could weigh on the prospects of the Film and Television Production and Distribution industry. Nevertheless, rising demand for blockbuster movies and TV shows coupled with evolution of distribution platforms due to increased Internet penetration should continue to drive growth.

None of the stocks in the industry sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

However, New York-based media and entertainment company ViacomCBS (VIAC - Free Report) carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2020 earnings has increased 1.2% to $6.13 per share over the past 30 days.

Price and Consensus: VIAC

 

 

Moreover, we are presenting a couple of stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to in the near term.

NY-based News Corporation (NWSA - Free Report) is a diversified media and information services conglomerate. The Zacks Consensus Estimate for its fiscal 2020 earnings has declined 14.6% to 35 cents per share over the past 30 days.

Price and Consensus: NWSA

 

 

Haidian, China-based iQIYI (IQ - Free Report) is an online media company. For 2020, the Zacks Consensus Estimate is pegged at a loss of $1.38 per share, unchanged over the past 30 days.

Price and Consensus: IQ

 





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