The trends in the media industry have changed in the last three to four years. The internal dynamics of the U.S. pay-TV industry have gradually shifted from cable TV operators to large telecom operators and low-cost over-the-top service providers. Cord cutting has emerged as a major threat to the entire media industry. Companies have lost video subscribers to online video streaming service providers such as Netflix (NFLX - Free Report) , Hulu.com and YouTube because of their cheap source of TV programming. Declining advertising revenues have also affected the industry.
Moreover, the U.S. pay-TV industry has also been affected by the massive consolidation between telecom and cable-TV operators. Gaining customers from competitors is a difficult task as most pay-TV operators offer innovative packages. The multi-channel video market in the United States is almost saturated.
In the face of such headwinds, companies in the space are struggling to stay ahead in the competition. The rising demand for technologically superior products is a silver lining for the companies in an otherwise tough environment. Comprehensive tax cuts, entry into the wireless industry and rollout of DOCSIS 3.1 technology are the major catalysts that bode well for this space.
Given this backdrop, let’s focus on the comparative analysis of some key metrics of two companies in the media industry falling under the broader Consumer Discretionary sector (one of the 16 Zacks sectors) — Comcast Corporation (CMCSA - Free Report) and Charter Communications Inc. (CHTR - Free Report) . At present, Comcast has a market capitalization of $182.84 billion, while that of Charter Communications stands at $81.71 billion.
Comcast versus Charter
Comcast is a global media and technology company with two primary businesses, Comcast Cable and NBCUniversal. Comcast is one of the largest video, high-speed Internet, phone services, wireless and security and automation service providers in the United States.
Charter Communications is a leading broadband communications company and the second largest cable multi service operator (MSO) in the United States after Comcast.
Currently, both carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We have assessed these media companies on the basis of the following parameters.
In the past three months, shares of Charter Communications have returned 8.6%, outperforming the broader sector’s rally of 5.4%. The stock has performed better than Comcast, which has declined 8.3% in the said time frame.
Valuation & Style Score
We have tried to evaluate Comcast and Charter Communications in terms of terms of price-to-earnings ratio (P/E - F1).
With a P/E ratio of 14.5, Comcast’s valuation looks favorable compared with 20.7 for the industry. In contrast, Charter Communications is overvalued with a P/E ratio of 81.0.
Notably, Comcast has an attractive VGM Score of B, which complements its encouraging valuation. Charter Communications lags on this front as it has a VGM Score of C. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Return on Equity (ROE)
The return on equity (ROE) looks impressive for Comcast as against Charter Communications. The current ROE for Comcast stands at 16.5% while that for Charter Communications is pegged at 1.1% compared with the industry’s ROE of 13.8%.
Earnings Surprise History and ESP
In terms of earnings history, Comcast has delivered positive surprise in all the prior four quarters with an average earnings surprise of 9.8%. However, Charter Communications’ earnings lagged the Zacks Consensus Estimate in three of the previous four quarters, resulting in an average miss of 36.7%.
But the situation changes when considering Earnings ESP values for the current quarter. While Comcast’s Earnings ESP is -0.70%, Charter Communications’ stands at +21.81%.
Earnings Estimate Revisions
Based on the last 30 days earnings estimate revisions, Comcast appears to be a broker favorite right now.
For Comcast, the Zacks Consensus Estimate for first-quarter 2018 earnings increased 1.7% to 61 cents per share. However, the scenario for Charter Communications is just the opposite. The Zacks Consensus Estimate for first-quarter earnings has gone down 13.6% to 51 cents per share.
For full-year 2018, estimates have gone up 1.6% to $2.52 for Comcast while the same has gone down 4.4% to $4.32 for Charter Communications.
We expect first-quarter 2018 revenue growth of 10.5% for Comcast, which is significantly higher than 4.5% for Charter Communications.
The picture is quite similar for the full-year 2018. We project 5.8% revenue growth for Comcast, higher than Charter Communications’ 4.8%.
Our comparative analysis shows that Comcast scores over Charter Communications when considering valuation, style score, earnings history, earnings and sales estimate trends and return on equity. However, Charter Communications is superior when considering price performance and Earnings ESP.
Top-ranked stocks in the broader Consumer and Discretionary sector are Cable One (CABO - Free Report) and AMC Networks (AMCX - Free Report) . While Cable One carries a Zacks Rank #2 (Buy), AMC Networks sports a Zacks Rank #1 (Strong Buy).
Cable One’s bottom line has surpassed the Zacks Consensus Estimate in two of the previous four quarters with an average beat of 2.7%. AMC Networks surpassed the consensus estimate in all the trailing four quarters with an average beat of 24.3%.
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