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The Zacks Cable Television industry is suffering from cord-cutting driven by innovative content offerings from streaming service providers. Focus on providing bundled offerings and on-demand programming content that cater to changing consumer behavior bodes well for streaming players.
Despite stiff competition, Cable Television industry players are benefiting from the spike in the coronavirus-led demand for high-speed broadband. Strong demand for WiFi devices and wireless Internet has been a growth factor. Increased consumption of media due to the pandemic-induced lockdowns and shelter-at-home guidelines has been a key catalyst for industry participants like Comcast, Charter Communications and DISH Network.
The Zacks Cable Television industry primarily comprises companies that provide integrated data, video and voice services. Industry participants offer pay-TV services, including Internet-based streaming content. These companies provide equipment such as satellite dishes, digital set-top receivers and remote controls. Typically, cable companies either build their own network backbone or lease physical access to the network backbone from telecommunication companies.
These companies purchase licenses to provide subscribers access to cable television channels owned by programmers and distributed over the network backbone. Cable companies also sell advertising spots on their channels. The industry requires a high capital expenditure on infrastructure to enhance its services. The industry is highly regulated by the Federal Communications Commission (FCC).
4 Trends Shaping the Future of the Cable Industry
Skinny Bundles, Original Content Driving Growth: Cable television’s ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. Nevertheless, consumers’ unfavorable disposition, particularly toward advertising, has hit industry participants hard.
Growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry players to alter their business models. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. These companies are also innovating in terms of original content to be competitive against streaming service providers.
High-Speed Internet Demand Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided the cable television industry participants like Comcast and Charter. Improving Internet speed is fueling demand for high-quality video and the trend of binge viewing.
Further, a strengthening broadband ecosystem in international markets, along with proliferation of smart TVs, is anticipated to drive growth. Also, the surging work-from-home trend and online-learning practice owing to the coronavirus-induced quarantines and lockdowns has boosted Internet usage, which is supporting the industry participants.
Cord Cutting and Matured PayTV Industry Hurting Prospects: The cable television industry is witnessing the rapid evolution of distribution platforms as well as embracing new players and advanced technologies. Declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies.
Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it particularly tricky for traditional cable television companies to maintain a viewer base. Furthermore, the traditional pay-TV industry is maturing with widespread consolidation. Moreover, residential voice service revenues are declining on the rising shift to wireless voice services.
Coronavirus Outbreak Impeding Business Growth: The coronavirus crisis is majorly impacting the U.S. economy, resulting in further cord-cutting. Markedly, small- and medium-sized businesses are the worst hit by the pandemic. Cable companies’ substantial exposure to this cohort is bothersome for investors.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #172, which places it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dim 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 that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Cable Television industry has outperformed the broader Zacks Consumer Discretionary sector but lags the S&P 500 composite over the past year.
The industry has risen 1.8% over this period against the broader sector’s decline of 9.6%. The S&P 500 has climbed 29.5% during the same time frame.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 12.17X compared with the S&P 500’s 16.17X and the sector’s 13.28X.
Over the past five years, the industry has traded as high as 19.25X, as low as 8.27X and at the median of 10.79X.
3 Cable Stocks to Watch Out For
Comcast: The Philadelphia, PA-based company is riding on an expanding broadband subscriber base and strong momentum in wireless business apart from advertising revenue growth. Its strategy to provide high-speed Internet at an affordable price plays a pivotal role in providing connectivity and improving customer experience.
Moreover, coronavirus-led increased media consumption, and the work-from-home and online-learning wave bode well for Comcast’s Internet business. Its streaming service, Peacock, gained significant traction within a short span and is a key catalyst in driving broadband sales.
Shares of this Zacks Rank #3 (Hold) company have increased 0.4% in the past year. The Zacks Consensus Mark for Comcast’s ongoing-year earnings has been steady at $3.71 per share in 30 days’ time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Charter Communications:This Zacks Rank #3 company is benefiting from growth in Internet and mobile revenues and steady customer wins. Internet revenues grew owing to a fortified customer base, promotional roll-off and rate adjustments.
Charter continues to witness solid Internet usage due to the coronavirus-induced work-from-home and online-learning routine. The company’s broadband service has gained traction among SMBs and enterprises. Additionally, an expanding mobile-subscriber base is a key catalyst.
Charter’s shares have inched up 0.7% in the past year. The consensus mark for 2022 earnings has moved down 0.2% to $31.45 per share in the past 30 days.
DISH Network: The company’s focus on acquiring and retaining subscribers, who will be profitable over the long term, is anticipated to stoke growth.
DISH’s expanding partner base for its standalone 5G network, is a key catalyst. Moreover, it partnered with Crown Castle for wireless towers. These initiatives bode well for DISH’s top-line growth over the long haul.
Englewood, CO-based DISH has returned 7.3% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-year earnings has moved 6.3% north to $3.70 per share over the past 30 days.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Comcast, Charter Communications, and DISH Network
For Immediate Release
Chicago, IL – January 6, 2022 – Today, Zacks Equity Research discusses Comcast (CMCSA - Free Report) , Charter Communications (CHTR - Free Report) , and DISH Network .
Industry: Cable TV
Link: https://www.zacks.com/commentary/1847524/3-cable-stocks-to-watch-out-for-in-a-challenging-industry
The Zacks Cable Television industry is suffering from cord-cutting driven by innovative content offerings from streaming service providers. Focus on providing bundled offerings and on-demand programming content that cater to changing consumer behavior bodes well for streaming players.
Despite stiff competition, Cable Television industry players are benefiting from the spike in the coronavirus-led demand for high-speed broadband. Strong demand for WiFi devices and wireless Internet has been a growth factor. Increased consumption of media due to the pandemic-induced lockdowns and shelter-at-home guidelines has been a key catalyst for industry participants like Comcast, Charter Communications and DISH Network.
The Zacks Cable Television industry primarily comprises companies that provide integrated data, video and voice services. Industry participants offer pay-TV services, including Internet-based streaming content. These companies provide equipment such as satellite dishes, digital set-top receivers and remote controls. Typically, cable companies either build their own network backbone or lease physical access to the network backbone from telecommunication companies.
These companies purchase licenses to provide subscribers access to cable television channels owned by programmers and distributed over the network backbone. Cable companies also sell advertising spots on their channels. The industry requires a high capital expenditure on infrastructure to enhance its services. The industry is highly regulated by the Federal Communications Commission (FCC).
4 Trends Shaping the Future of the Cable Industry
Skinny Bundles, Original Content Driving Growth: Cable television’s ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. Nevertheless, consumers’ unfavorable disposition, particularly toward advertising, has hit industry participants hard.
Growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry players to alter their business models. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. These companies are also innovating in terms of original content to be competitive against streaming service providers.
High-Speed Internet Demand Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided the cable television industry participants like Comcast and Charter. Improving Internet speed is fueling demand for high-quality video and the trend of binge viewing.
Further, a strengthening broadband ecosystem in international markets, along with proliferation of smart TVs, is anticipated to drive growth. Also, the surging work-from-home trend and online-learning practice owing to the coronavirus-induced quarantines and lockdowns has boosted Internet usage, which is supporting the industry participants.
Cord Cutting and Matured PayTV Industry Hurting Prospects: The cable television industry is witnessing the rapid evolution of distribution platforms as well as embracing new players and advanced technologies. Declining profitability of residential video services due to rising programming costs and retransmission fees has made survival difficult for traditional companies.
Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it particularly tricky for traditional cable television companies to maintain a viewer base. Furthermore, the traditional pay-TV industry is maturing with widespread consolidation. Moreover, residential voice service revenues are declining on the rising shift to wireless voice services.
Coronavirus Outbreak Impeding Business Growth: The coronavirus crisis is majorly impacting the U.S. economy, resulting in further cord-cutting. Markedly, small- and medium-sized businesses are the worst hit by the pandemic. Cable companies’ substantial exposure to this cohort is bothersome for investors.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #172, which places it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dim 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 that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Cable Television industry has outperformed the broader Zacks Consumer Discretionary sector but lags the S&P 500 composite over the past year.
The industry has risen 1.8% over this period against the broader sector’s decline of 9.6%. The S&P 500 has climbed 29.5% during the same time frame.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 12.17X compared with the S&P 500’s 16.17X and the sector’s 13.28X.
Over the past five years, the industry has traded as high as 19.25X, as low as 8.27X and at the median of 10.79X.
3 Cable Stocks to Watch Out For
Comcast: The Philadelphia, PA-based company is riding on an expanding broadband subscriber base and strong momentum in wireless business apart from advertising revenue growth. Its strategy to provide high-speed Internet at an affordable price plays a pivotal role in providing connectivity and improving customer experience.
Moreover, coronavirus-led increased media consumption, and the work-from-home and online-learning wave bode well for Comcast’s Internet business. Its streaming service, Peacock, gained significant traction within a short span and is a key catalyst in driving broadband sales.
Shares of this Zacks Rank #3 (Hold) company have increased 0.4% in the past year. The Zacks Consensus Mark for Comcast’s ongoing-year earnings has been steady at $3.71 per share in 30 days’ time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Charter Communications:This Zacks Rank #3 company is benefiting from growth in Internet and mobile revenues and steady customer wins. Internet revenues grew owing to a fortified customer base, promotional roll-off and rate adjustments.
Charter continues to witness solid Internet usage due to the coronavirus-induced work-from-home and online-learning routine. The company’s broadband service has gained traction among SMBs and enterprises. Additionally, an expanding mobile-subscriber base is a key catalyst.
Charter’s shares have inched up 0.7% in the past year. The consensus mark for 2022 earnings has moved down 0.2% to $31.45 per share in the past 30 days.
DISH Network: The company’s focus on acquiring and retaining subscribers, who will be profitable over the long term, is anticipated to stoke growth.
DISH’s expanding partner base for its standalone 5G network, is a key catalyst. Moreover, it partnered with Crown Castle for wireless towers. These initiatives bode well for DISH’s top-line growth over the long haul.
Englewood, CO-based DISH has returned 7.3% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-year earnings has moved 6.3% north to $3.70 per share over the past 30 days.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How to Profit from Trillions on Spending for Infrastructure >>
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.