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Media Faces Trump's Ire: Will Political Spending Aid Stocks?

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President Donald Trump has once again slammed media companies. This time, the President criticized CNN and Comcast-owned NBC News for the latter’s handling of a story on movie producer, Harvey Weinstein and suggested a review of its broadcast license.

The attack intensifies the problems of the media industry, which has not been in the good books of the President for quite some time now. Trump has accused industry players of spreading fake news and “unfair coverage of him”.

We note that the traditional media players are already in troubled waters owing to the rapid change in distribution platform and technological advancement in the media industry. Revenues from print media, which include newspapers and magazines, are on the decline. Cord cutting and stiff competition from streaming services like Netflix, Hulu, HBO and Amazon Prime have kept media revenues under strain.



Not All is Lost                                                                                                                

The media sector is expected to enjoy a good run in the near term, thanks to strong demand for political advertising. As a series of political contests are scheduled for November, the momentum in spending is expected to remain strong. Higher spending on video advertising is what benefits media houses the most.

Moreover, in order to attract customers a variety of alternative packages, including skinny bundles, are now being offered at lower costs than traditional offerings. Increase cord shaving bears testimony to the fact. Cable providers are coming up with their own wireless services as a safeguard against declining revenues from traditional cable TV.

Further, increasing investments in original content and focus on providing quality entertainment are helping industry participants to lower churn rate. Improving broadband ecosystem in the international markets along with proliferation of smart TVs is anticipated to drive growth.

Solid performance of the Invesco Dynamic Media ETF (PBS - Free Report) that has returned 13.9% on a year-to-date basis compared with the S&P 500 Composite’s gain of 8.2% testifies the fact.

Solid Projections

Per Borrell Associates, political advertising in the United States for this year’s mid-term elections will grow 8% to $8.9 billion compared with the same election four years ago.

Broadcast TV is anticipated to enjoy the largest chunk of the overall spending at 38.8%, followed by digital with 20% and Cable TV with 12.5% share. Radio, newspapers, telemarketing etc. will contribute the rest.

Per PWC’s latest report, Global Entertainment & Media (E&M) revenues will witness 4.4% CAGR over the 2018-2022 period to reach $2.4 trillion.

The growth is expected to come majorly from digital segments with virtual reality and over-the-top content taking the lead. Notably, media companies are taking advantage of these technologies to enhance their content and make it more appealing to consumers.

Moreover, increasing popularity of e-sports is leading to intense competition among streaming services, TV companies and social networks for obtaining rights. The firm considers e-sports to be the second fastest-growing segment.

Media Stocks in Focus

Here we present four media stocks that have the scope to gain further.

The E.W. Scripps Company (SSP - Free Report) serves audiences and businesses through a growing portfolio of television, print and digital media brands.

Scripps is riding on higher political advertising dollars. In the last reported quarter, the company’s political advertising revenues were nearly $15 million, more than double the amount earned in the second quarter of 2014, the last time mid-term election was held.

The company sports a Zacks Rank #1 (Strong Buy) and delivered an average four-quarter positive earnings surprise of 52.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Entravision Communications Corporation (EVC - Free Report) is a diversified media company utilizing a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States.

Solid growth in the company’s digital segment is helping it make up for the loss of revenues from television segment. The company is also very optimistic about the ramp up in political spending in the first two quarters of 2018.

The Zacks Rank #2 (Buy) stock delivered an average four-quarter positive earnings surprise of 2108.3%.

Townsquare Media Inc. (TSQ - Free Report) owns and operates radio, digital and live event properties in small to mid-sized markets across the United States.

The company is benefiting from continued stability in broadcast products and strong growth of digital marketing solutions. Political revenue growth is a key driver for this company as well. In the last reported quarter, political spending increased nearly $1 million from the year-ago quarter.

The Zacks Rank #2 stock delivered an average four-quarter positive earnings surprise of 4.4%.

Gray Television, Inc. (GTN - Free Report) owns and operates television stations and leading digital assets throughout the United States.

The company is benefiting from strong pickup in political advertising. In the last reported quarter, the company’s political advertising revenues exceeded the high end of the guidance at $18.1 million.

The Zacks Rank #3 (Hold) stock came up with an average four-quarter positive earnings surprise of 29.7%.

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