Lockdowns and shelter-in-place guidelines aimed at flattening the infection curve from coronavirus outbreak have impacted the Zacks Broadcast Radio and Television industry negatively. The increasing rate of cord-cutting and significant delays in production of movies and shows has cast a shadow on the industry’s prospects.
Nonetheless, TEGNA (TGNA), Gray Television Inc. (GTN), The E.W. Scripps Company (SSP) and Entravision Communications Corporation (EVC) are a few industry participants set to benefit from their diversified customer offerings which is original, regional, short and suitable for small screens (smartphones and tablets), increased content consumption and improved Internet speed and penetration, and technological advancement.
The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, non-fiction and musical content over television, radio and digital media platforms. These companies majorly derive revenues from the sale of advertising slots as well as subscriptions.
4 Broadcast Radio and Television Industry Trends to Watch Out For
Shift in Consumer Preference a Key Catalyst: To adapt to the changes in the industry, companies like Fox Corporation (FOXA), ViacomCBS and Discovery (DISCA) are coming up with varied content for over-the-top (OTT) services in addition to linear TV. Additionally, they are adding OTT services to their content portfolio. This is helping companies easily reach a global audience and expand their international user base. This, in turn, attracts advertisers to their platforms, thereby boosting ad revenues. Moreover, the use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit advertisers and industry participants. Also, major leagues and events such as NFL, NHL, Olympics, European Games, EPL and elections attract significant ad dollars. However, cancellation or postponement of sports events due to the coronavirus outbreak is a major concern.
Increased Digital Viewing Aids Content Demand: Many industry participants, who are either launching their own OTT services or acquiring other OTT services, are banking on user insights to deliver the right content. Increased digital viewing is making consumer data easily available to companies, thereby allowing them to apply AI and machine learning techniques to create/procure targeted content. The move not only boosts user engagement but also lets industry participants raise prices of their services at appropriate time without the fear of losing subscribers.
Coronavirus Hurts Production and Ad Demand: Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes and heightened fears of a prolonged recession. The pandemic has bumped up unemployment, which is expected to increase cord-cutting. Moreover, postponement of production threatens to choke supply of new content. Additionally, advertising is a major source of revenues for this industry, which has been badly hit by the coronavirus. Lower ad demand and reduced spending are expected to hurt the top line in the near term. Moreover, the industry players are facing stiff competition from tech companies like Facebook, Twitter, Alphabet-division Google and Amazon for ad-dollars. This has been a major impediment for growth, which is expected to continue marring prospects.
Low-Priced Skinny Bundles Hurt Revenues: Increase in cord cutting has forced industry participants to offer “skinny bundles.” These services, which are available through the Internet, often contain fewer channels than a traditional subscription and therefore, are cheaper. The move is in line with changing consumer viewing dynamics as growth in Internet penetration and advancements in mobile, video and wireless technologies have boosted small-screen viewing. The alternative services are expected to keep users glued to their platforms, thereby increasing the need to produce more content. Moreover, coronavirus-led lockdowns and shelter-in-place guidelines that compelled more people to stay at home have significantly increased viewership and audience base. However, the low-priced skinny bundles are likely to hurt top-line growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #99, which places it in the top 40% 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 solid 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since Jun 30, 2020, the industry’s earnings estimates for 2020 have moved up 9.1%.
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 Beats Sector and S&P 500
The Zacks Broadcast Radio and Television industry has outperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 Index over the past year.
The industry has gained 28.4% over this period compared with the S&P 500’s increase of 10.1% and broader sector’s rally of 6.4%.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing Broadcast Radio and Television stocks, the industry is currently trading at 21.65X versus the S&P 500’s 14.24X and the sector’s 11.11X.
Over the past five years, the industry has traded as high as 32.68X and as low as 17.57X, recording a median of 22.61X, as the chart below shows.
EV/EBITDA Ratio (TTM)
4 Broadcast Radio and Television Stocks to Watch
TEGNA: This McLean, VA-based Media Company offering high-quality television programming and digital content has been benefiting from a stable subscriber base and higher rates. Solid contribution from acquisitions, a continued spike in subscription revenues and strong spending on political advertisements are major drivers for this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The focus on local content is driving subscription revenues from traditional cable and satellite operators as well as OTT providers. TEGNA’s buyouts of local TV stations that comprise the Big Four affiliates along with aggressive spending on political ads are likely to aid its top line in 2020.
The Zacks Consensus Estimate for 2020 earnings has remained unchanged at $1.88 over the past 30 days. The stock has lost 29.6% year to date.
Price and Consensus: TGNA
The E.W. Scripps Company: This Cincinnati, OH-based Zacks Rank #2 company has been benefiting from higher retransmission revenues. Scripps has completed two key distributor negotiations this year, covering 30% of its subscriber households. Dish customers account for an additional 10% of Scripps subscribers. Scripps also reset its Comcast contract on Jan. 1.
Moreover, the company is set to acquire ION Media for $2.65 billion. Warren Buffett's Berkshire Hathaway is helping to fund the deal. The media company estimates that the acquisition will create $500 million in synergies over the next six years, predominantly derived from carriage fee savings related to Katz Networks.
However, core advertising has taken a hit due to sluggish ad demand and spending impacted by the economic downturn as a result of coronavirus outbreak. The stock has lost 26.1% year to date.
Notably, the Zacks Consensus Estimate for 2020 earnings has been revised upward by 22.5% over the past 30 days to 49 cents per share.
Price and Consensus: SSP
Gray Television: Headquartered in Atlanta, GA, this Zacks Rank #2 company’s local stations are significantly popular among political ad buyers, which is a key catalyst. Notably, post the Raycom acquisition, Gray reaches almost 25% of the U.S. population in 93 markets, operating more than 150 Big Four affiliated stations.
While its revenues have been hit hard by the crash in advertising spending during the coronavirus, it will also see a big surge in political advertising heading into the November presidential election.
The Zacks Consensus Estimate for 2020 earnings has remained stable at $2.79 per share over the past 30 days. Grey Television’s shares are down 35.3% year to date.
Price and Consensus: GTN
Santa Monica, CA-based Entravision Communications is a diversified media company utilizing a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States. This Zacks Rank #2 company provides Latino data and digital services to advertisers. Entravision’s increasing digital advertising solutions portfolio is a major growth driver. Notably, expansion into Mexico, Argentina and Colombia are expected to further boost advertiser base.
However, softness in coronavirus induced ad spending is obstructing top-line growth. The stock has lost 49.6% year to date.
The Zacks Consensus Estimate for loss in 2020 has remained stable at 29 cents per share over the past 30 days.
Price and Consensus: EVC
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