Many of today's media firms are highly diversified across broadcasting and entertainment sectors. As a result, the Covid-19 shutdown has hurt areas such as theme parks, sports and movies while boosting markets such as digital streaming and overall TV viewership.
Several MoneyShow.com contributors review long-term values in select media firms.
Crista Huff, Cabot Undervalued Stocks Advisor
Netflix (NFLX) is the world's leading streaming entertainment service with over 167 million paid memberships in over 190 countries. Viewers can enjoy unlimited access to TV series, documentaries and feature films across a wide variety of genres and languages, all without commercial interruptions.
The company is experiencing rapid international subscription growth and creating original foreign language content for international markets. Netflix will host their annual shareholder meeting in early June.
The first-quarter earnings release featured outstanding subscriber growth and a rising operating margin that's enhancing earnings per share. Wall Street expects full-year profits to grow 57% and 33% in 2002 and 2021.
Hedge fund Appaloosa LP initiated a stake of 255,000 shares in Netflix during the first quarter. The stock is appropriate for long-term investors and momentum investors. The stock rose to a new all-time high again in May and is now pulling back back. Netflix is a high-P/E growth stock. I rate the shares a "buy".
Chuck Carlson, DRIP Investor
I'd be lying if I said the dividend suspension at Disney (DIS) didn't catch me a little off guard. However, the company's move to preserve capital is understandable given the hit that the firm has taken on nearly every aspect of its business. Indeed, the lockdown of movie theaters has created havoc with the company's film division.
The lockdown has also created stress in Disney's theme-park business. The economic slowdown will also have an impact on advertising, which will hit the company's broadcast unit. The one bright spot has been Disney's streaming services. The firm's Disney+ streaming service reached 50 million subscribers in just five months.
While it is likely that the ill effects from the coronavirus will impact results for the remainder of the year, I still remain confident that Disney's brands will be able to come out of this down period intact. I do think its theme parks will see strong demand in 2021, as will its film business. And continued strength in streaming is another reason to like the rebound potential of these shares.
The stock has picked up a bit in recent trading, buoyed partly by hopes for better treatments for Covid-19 and expectations of loosening "stay-at-home" orders throughout the country. Despite the recent bounce, these shares still trade at around a 23% discount to their 52-week high of $153.
While I wouldn't be surprised to see the stock have fairly choppy trading action over the next few months, I remain a long-term bull on these shares and would be willing to do buying at current levels and especially on any dips below $100.
Douglas Gerlach, Investor Advisory Service
Nexstar Media Group (NXST) -- the nation's leading operator of TV stations -- reported first-quarter results were better than expected. Revenue increased 74%, largely attributable to the Tribune acquisition, which closed last September.
Advertising revenue, which represents less than half total revenue, grew 87%. Political advertising jumped significantly, helped by spending by presidential candidates. GAAP EPS was $3.30, up from $1.15 a year ago.
In March, Nexstar experienced a significant decline in commercial advertising revenue, which has continued into the second quarter. Same-station non-political advertising declined 5% in the first quarter. In response, it withdrew its free cash flow guidance for the 2020/2021 cycle.
A majority of revenue this year is expected to be derived from distribution fees and political advertising, which is not expected to be materially impacted by the virus.
The company also has reasonable visibility of distribution fee economics through 2022, as it completed new multi-year retransmission agreements representing approximately 70% of its subscribers in 2019 as well as new long-term network affiliation contracts with key networks.
In response to the virus the company implemented cost-cutting initiatives that are expected to result in operating expense savings of approximately $40 million in the second quarter. Nexstar is carrying elevated debt levels following the Tribune acquisition. Management continues to prioritize debt paydown. The stock is a buy up to $124.
John Buckingham, The Prudent Speculator
Comcast (CMCSA) is a global media and technology company with two primary businesses, Comcast Cable and NBCUniversal. The former is one of the nation's largest video, high-speed internet and phone providers to residential customers under the XFINITY brand and also provides these services to businesses.
The latter operates news, entertainment and sports cable networks, the NBC and Telemundo broadcast networks, television production operations, television station groups, Universal Pictures and Universal Parks and Resorts. Comcast beat first-quarter 2020 EPS estimates ($0.71 vs. $0.66 estimate but came up slightly short on revenue ($26.61 billion vs. $26.80 billion).
The coronavirus-related shutdowns have resulted in theme park closures, costing significant sums, but management believes that the company will benefit from "strong pent-up demand" when parks reopen.
In the meantime, we like that Comcast continues to expand its already diversified income stream and that folks watching video at home has translated to stronger-than-expected consumption of the expensive content bought up lately. Eventually sports will resume and parks will reopen, while CMCSA yields 2.4%.
Media conglomerate ViacomCBS (VIAC) produced earnings in the first quarter that beat consensus analyst estimates by more than 15% ($1.13 vs. $0.98). Both free and pay streaming platforms grew users/subscribers at solid rates in the quarter.
Management has intentions to use the Pluto TV platform as a launching pad to integrate content across the business as it transitions to streaming. Pluto TV saw domestic monthly active users grew 55% year-over-year to more than 24 million as of quarter end, driven by original hit programming from CBS All Access and Showtime OTT.
While the trends toward video on demand may pressure network ad revenue over time and gradual cord cutting is likely to result in TV subscriber declines from Viacom networks, we think VIAC has made solid strides in bringing the current and potential new content offerings from the combined firm toward direct-to-consumer subscription platforms.
In addition, recent deals with CBS highlight the value of the network's reach to almost all households in the U.S. Despite the bounce in recent trading, the shares still trade at under 5 times expected 2020 earnings and yield over 5%. Of course, the balance sheet sports a massive amount of debt, so VIAC is definitely a more volatile holding.
Our target price for VIAC is $58.
Bob Ciura, Sure Dividend
Groupo Televisa SAB (TV) is a diversified media conglomerate. In all, Televisa operates 25 pay-tv brands, and television networks, cable operators and over-the-top services in over 50 countries. In the U.S., it operates Univision. In addition, Televisa owns a majority interest in Sky, a satellite television provider in Mexico, the Dominican Republic, and Central America.
The company is enjoying strong growth, thanks largely to high economic growth in Mexico and several Latin American markets. The company's strongest businesses are Sky and cable.
Televisa is a strong brand and has a fundamental advantage, thanks to its geographic focus. As a result, it is a compelling growth stock, for investors interested in international diversification. The company has multiple catalysts for growth in front of it, specifically a rising audience and declining capital expenditure requirements.
In all, Televisa ended last year with approximately 20 million video, voice, and broadband revenue generating units. This investment in expanding the company's customer base will propel its future growth in the years ahead. While it does not pay much of a dividend to shareholders, Televisa's return potential is still significant, thanks to its rapid growth.
Liberty Global (LBTYK) is the largest international television and Internet provider. Its core brand in Europe is Virgin Media. It also has the Ziggo, Unitymedia, Telenet, and UPC brands.
The European economy is on shaky ground broadly speaking, with weak economic growth due to coronavirus and the uncertainty presented by Brexit. This has led to challenging results to start 2020. But television and Internet is a growth industry, because of the low levels of market penetration.
There are still many parts of Europe with untapped growth potential. As far as future growth is concerned, there is plenty of runway left. Liberty expects to add more new households in the years ahead. This aggressive expansion required significant capital investment, but the payoff is growth.
The company is investing large amounts of capital. There will be little cash flow to spare over the next two years, which is why the stock does not pay a dividend. In the meantime, the stock is reasonably valued and could generate double-digit earnings growth. This earnings growth means investors can earn satisfactory returns moving forward, even without the benefit of a dividend.