The Zacks Audio Video Production industry comprises manufacturers of televisions, speakers, video players and camcorders. It also includes companies offering gaming consoles, drones and high-end cameras for individuals as well as industrial markets around the world. These firms offer innovative audio, imaging and voice technologies that enhance entertainment and communication at theaters, homes, work and mobile devices. Some industry participants also design and develop audio and imaging products, including digital cinema servers as well as related products for film production, cinema and entertainment industries.

Apart from providing a host of services for theatrical and television production for cinema exhibition, broadcast and home entertainment, the companies work with film studios, content creators, post-production facilities, cinema operators, broadcasters and video game designers. Some prominent players even have a presence in the music and image-based software markets worldwide.

Let’s take a look at the three major themes in the industry.

•    Over the past several years, shift to digital technology has catered to the demand for high-resolution video, reduced the problems of radio frequency and electromagnetic interference, making audiovisual systems more data-network friendly. Wireless transmission has enabled broadcast of audio-video signals through wireless data networks in a seamless manner, while improving productivity. The industry has been providing valuable services to a range of media producers. However, easy online accessibility of recording equipment and the widespread availability of distribution channels on the Internet have significantly eroded margins in the sector.

•    The COVID-19 pandemic has led to a slowdown of economic activities in the United States and the audio-visual industry is no exception. The halt of production along with supply and logistics issues is likely to create tremendous backlogs throughout 2020. The pandemic is causing a serious impact on the global economy and has compelled policymakers to look for ways to respond. Manufacturers have been hit hard and world trade volume is expected to plummet this year. The outbreak first rattled manufacturers outside China which rely on factories in the Asian powerhouse for materials and parts to make their products.

•    In the United States, smart-connected televisions, microphones and speaker enclosures are the most popular electronic devices among customers. But the U.S. manufacturers of audio and video systems continue to face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. Also, a decline in music sales has taken a heavy toll on the industry’s prospects. Nevertheless, companies are investing in cutting-edge technology solutions that create better communication experience. Furthermore, stability among these producers as well as various advertisers will likely enable entertainment industries to take advantage of increasing consumer disposable income levels.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Audio Video Production industry, which has eight constituent companies, is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #86, which places it at the top 34% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is 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 outperform 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 an outcome of a positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained faith in this group’s earnings growth potential. The industry’s earnings estimates for the next year have increased as much as 105% in the past eleven months.

Before we present a few audio-video production stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector, S&P 500

The Zacks Audio Video Production industry has outperformed both the broader Zacks Consumer Discretionary sector and the S&P 500 composite in the past year.

The industry has returned 16.8% over this period against the S&P 500’s decline of 2.9%. Meanwhile, the broader sector has lost 17.7%.

One-Year Price Performance



Industry’s Current Valuation

The Price-to-Sales ratio is commonly used for valuing audio-video production stocks. The industry currently has a forward 12-month P/S of 0.81X compared with the S&P 500’s 3.23X. It is also below the sector’s forward 12-month P/S of 1.92X.

Over the past five years, the industry has traded as high as 0.91X and as low as 0.13X with the median of 0.63X, as the chart below shows.

Price-to-Sales F12M Ratio (Past Five Years)



Bottom Line

The industry has performed well despite drastic changes in how media is consumed, distributed and recorded. It is expected to benefit from promising long-term growth drivers, as the economy reopens owing to improving macroeconomic environment, technological advances and an increase in consumer spending. Rise in demand from record labels, TV producers and advertisers are anticipated to drive revenue growth. However, the profitability of individual companies largely depends on manufacturing efficiency as well as effective marketing and distribution process.

None of the stocks in the arena currently sport a Zacks Rank #1 (Strong Buy). So, we are presenting two stocks with a Zacks Rank #2 (Buy) that investors may consider betting on now. You can see the complete list of today’s Zacks #1 Rank stocks here.

LiveXLive Media, Inc. : Shares of this West Hollywood, CA-based digital media company have rallied 47.8% in the past three months. The Zacks Consensus Estimate for its current-year earnings has remained stable in the past 60 days.

Price and Consensus: LIVX



Panasonic Corporation : The stock of this Kadoma, Japan-based electronic products manufacturer has lost 29.5% in the past three months. The consensus estimate for its current-year earnings has been revised 4.1% upward in the past 60 days. The company has a trailing four-quarter positive earnings surprise of 46.4%, on average. Panasonic has a VGM Score of A.

Price and Consensus: PCRFY



We are also presenting two stocks with a Zacks Rank #3 (Hold) that are well positioned to grow.

Sony Corporation : Shares of this Tokyo, Japan-based electronic equipment maker have increased 7.1% in the past six months. The consensus mark for its current-year earnings has been revised 0.9% upward in the past 60 days.

Price and Consensus: SNE



Dolby Laboratories, Inc. (DLB Quick QuoteDLB - Free Report) : Shares of this San Francisco, CA-based audio and imaging technologies creator have lost 6.1% in the past six months. The consensus estimate for its next-year earnings has remained stable in the past 30 days. Dolby has a long-term earnings growth expectation of 13%. It has a trailing four-quarter positive earnings surprise of 11.9%, on average. The company’s earnings beat the Zacks Consensus Estimate in two of the last four quarters.

Price and Consensus: DLB



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