Yahoo Finance 3 Broadcast Radio & TV Stocks to Buy From a Prospering Industry
The Zacks Broadcast Radio and Television industry has been grappling with an escalation in cord-cutting amid a surge in demand for streaming content. Industry players such as Netflix NFLX, Gray Television GTN and The E.W. Scripps Company SSP are reaping the benefits of a massive spike in digital content consumption. These companies are thriving due to their diverse content offerings, which include original, regional, and short-form content tailored for small screens like smartphones and tablets. Improved Internet speed and penetration, coupled with technological advancements, have been advantageous for industry participants. As monetization and revenues from advertising spending continue to be modest, strategies focused on profit protection, cash management and greater technology integration have gained significance and are expected to aid these companies in driving top-line growth in the near term.
Industry Description
The Zacks Broadcast Radio and Television industry encompasses companies that provide entertainment, sports, news, non-fiction, and musical content across television, radio, and digital media platforms. These entities generate revenues through the sale of television and radio programs, advertising slots and subscriptions. With technological advancements and a growing demand for virtual reality and Internet radio, industry players are increasing their investments in research and development, as well as sales and marketing efforts, to remain competitive. The industry's focus is likely to shift toward sustaining current levels of operations, coupled with a renewed emphasis on flexibility. This approach would accelerate the transition to a variable cost model, thereby reducing fixed costs and enhancing agility in the face of evolving market dynamics.
4 Broadcast Radio and Television Industry Trends to Watch
Shift in Consumer Preference a Key Catalyst: To adapt to the evolving landscape, companies are diversifying their content offerings for over-the-top (OTT) services alongside traditional linear TV. The availability of streaming services across a wide range of platforms has enabled them to reach a global audience, expanding their international user base and attracting advertisers to their platforms, thereby boosting ad revenues. The utilization of services that aid advertisers in measuring their return on investment and enhancing use cases is expected to benefit industry participants. Major leagues and events, such as the NFL, NHL, Olympics, European Games, EPL and elections, also contribute significantly to ad revenue generation.
Increased Digital Viewing Fuels Content Demand: Many industry participants, either launching their own OTT services or acquiring existing ones, leverage user insights to deliver tailored content. The surge in digital viewing has made consumer data readily available, allowing companies to apply artificial intelligence and machine learning techniques to create or procure targeted content. This approach not only boosts user engagement but also enables industry players to raise the prices of their services at opportune moments without fear of losing subscribers.
Uncertain Macroeconomic Landscape Impedes Production and Ad Demand: Advertising is a significant revenue source for the Broadcast Radio and Television industry. However, industry participants are grappling with the effects of persistently high inflation, rising interest rates, increased capital costs, a soaring U.S. dollar and the looming threat of a recession. These factors have prompted advertisers to trim their ad budgets, which is expected to impact the top-line growth of industry players in the near term. Moreover, intense competition for ad dollars from tech and social media companies has been a significant impediment to the growth of industry participants.
Low-Priced Skinny Bundles Impact Revenues: The surge in cord-cutting has compelled industry participants to offer "skinny bundles." These Internet-based services often contain fewer channels than traditional subscriptions and are, therefore, more affordable. This move aligns with changing consumer viewing dynamics, as growth in Internet penetration and advancements in mobile, video and wireless technologies have boosted small-screen viewing. While these alternative services are expected to keep users engaged with their platforms, increasing the need for additional content, the low-priced skinny bundles are likely to dampen the top-line performance of industry players.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #49, which places it in the top 20% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent companies in aggregate.
Before we present some 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 and the S&P 500 Index in the past year.
The industry has gained 41.4% over this period compared with the S&P 500’s rise of 28.2% and the broader sector’s increase of 10%.
One-Year Price Performance
Industry's Current Valuation
On the basis of 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 12.22X versus the S&P 500’s 14.68X and the sector’s 8.39X.
In the past five years, the industry has traded as high as 42.81X and as low as 7.23X, recording a median of 27.99X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Broadcast Radio and Television Stocks to Buy
Netflix: This Zacks Rank #1 (Strong Buy) company is benefiting from its growing subscriber base thanks to a robust content portfolio and revenue initiatives like its crackdown on password-sharing and ad-supported tier. It has also hiked the prices of certain subscription plans. At the end of the first quarter, Netflix had 269.6 million paid subscribers across more than 190 countries globally, up 16% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Netflix’s diversified content portfolio, backed by heavy investments in the production and distribution of localized, foreign-language content, has been driving its growth prospects. Netflix plans to spend more than half of its 2024 content budget outside of North America, with 51% of its $15 billion budget allocated to international content. Netflix’s sprawling games portfolio is also expected to boost user engagement in the near term.
Its upcoming Japanese titles include Garouden: The Way of the Lone Wolf, Baki Hanma VS Kengan Ashura and My Oni Girl. Daughters, an English original film, will be released on Aug 14, 2024, followed by Secret Lives of Orangutans, which is set to hit the platform on Aug 22. Netflix has acquired the rights to livestream World Wrestling Entertainment's Raw exclusively from January 2025. The rights deal that cost over $5 billion will span a period of 10 years, putting Raw on the streaming platform in the United States, Canada, Britain and Latin America.
The Zacks Consensus Estimate for 2024 earnings has moved north by 1.89% to $18.31 per share in the past 60 days. NFLX’s shares have returned 33.6% year to date.
Price and Consensus: NFLX
Gray Television: This Zacks Rank #1 company is a high-quality TV broadcaster whose dominance in its local markets and excellent cost controls position it well within its sector. The company’s television stations serve 114 television markets that collectively reach approximately 36% U.S. television households. Its portfolio includes 79 markets with the top-rated television station and 102 markets with the first and/or second highest-rated television station.
Its core advertising revenues are benefiting from the strength of the station group and some incremental sports programming. Strong advertiser demand for local content, including numerous professional sporting events such as Super Bowl and local packages of NBA games on its stations, bodes well.
Gray’s portfolio and strong local news stations are well-positioned to capitalize on competitive political races in dozens of markets across the country. Gray has nearly total market coverage in many highly contested swing states, including Michigan, Georgia, Wisconsin and Arizona. The company has stations in a substantial majority of the states with governors’ races and 26 of 34 Senate races. The company continues to anticipate strong political advertising revenues for the full year that will materialize later in the year.
The Zacks Consensus Estimate for 2024 earnings has moved north by 38.89% to $5.25 per share in the past 60 days. GTN’s shares have declined 33.4% year to date.
Price and Consensus: GTN
The E.W. Scripps Company: This Zacks Rank #2 (Buy) company serves audiences and businesses through a growing portfolio of television, print and digital media brands. The company is benefiting from strong local media political advertising and distribution revenues, a lift in direct-response advertising in the Scripps Networks division and prudent expense management.
Scripps now believes its 2024 election-year political advertising revenues will reach the range of $240 million-$270 million, up from $210 million-$250 million expected previously. The increased outlook is being driven largely by U.S. Senate races in Montana and Ohio, as well as controversial ballot issues in several states.
The company will partner with ProPublica to produce in-depth investigations on issues impacting people across the country. The journalism will be shown on air and across Scripps News and ProPublica digital platforms. Scripps News will also feature ProPublica reporters on local and national programming regularly to highlight the organization’s original reporting.
The Zacks Consensus Estimate for SSP’s 2024 earnings has increased 1.35% to 75 cents per share in the past 30 days. The stock is down 63% year to date.
Price and Consensus: SSP
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
E.W. Scripps Company (The) (SSP) : Free Stock Analysis Report
Gray Television, Inc. (GTN) : Free Stock Analysis Report
