Historically high inflation has ravaged several industries worldwide, and the entertainment industry is no exception. Because of inflation, many consumers are in the United States Reduction of their typical hospitality costs. According to a survey conducted earlier this year, around 30% said they plan to spend less on concerts, sporting events and going out.
However, the pandemic has boosted streaming services, gaming and user-generated content, and these trends are set to continue while demand for in-person entertainment is expected to live on. The global entertainment and media market is expected to grow at a CAGR of 10.4% until 2030.
Given near-term headwinds, we hold fundamentally weak entertainment stocks Warner Bros. Discovery, Inc. (WBD) and AMC Entertainment Holdings, Inc. (AMC) are best avoided. But investors looking to invest in this sector might consider buying quality entertainment stocks Comcast Corporation (CMCSA).
Stocks to avoid:
Warner Bros. Discovery, Inc. (WBD)
The media company WBD offers content via various distribution platforms in around 50 languages worldwide. It also produces, develops and distributes feature films, television shows, games and other content in various physical and digital formats.
WBD’s total revenues for the second quarter ended June 30, 2022 increased 220.9% year-on-year to $9.83 billion. However, the net loss was $3.42 billion compared to income of $672 million in the previous period. Additionally, loss per share was $1.50 compared to earnings per share of $1.01 in the year-ago period.
WBD’s expected EV/EBITDA of 9.37x is 19.7% above the industry average of 7.83x. Its expected P/cash flow of 10.61x is 25.2% higher than the industry average of 8.48x.
WBD’s earnings per share are expected to fall 117.8% year over year to minus $0.31 in 2022. All four trailing quarters missed consensus estimates for earnings per share. The stock is down 43.9% year-to-date to close the last trading session at $13.21.
WBD’s POWR ratings reflect his poor prospects. The POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting. The stock has an overall rating of F, indicating a strong sell.
It has a D grade for Growth, Stability, Mood and Quality. click here to access the additional POWR ratings for WBD (Value and Momentum). WBD ranks last among 16 F-rated stocks Entertainment – Media Producers Industry.
AMC Entertainment Holdings, Inc. (AMC)
AMC and its subsidiaries are engaged in the theatrical exhibition business. The Company owns, operates or has interests in theaters in the United States and Europe. The company operates 22 of the top 50 grossing movie theaters in the United States.
AMC’s total revenues for the second quarter ended June 30, 2022 were $1.17 billion, a year-over-year increase of 162.3%. However, the cost of the film exhibition increased 232.4% year over year to $328.70 million. In addition, its cash and cash equivalents were $965.20 million for the period ended June 30, 2022 compared to $1.59 billion for the period ended December 31, 2021.
AMC’s forward EV/S of 3.32x is 70.3% higher than the industry average of 1.95x. Its expected EV/EBITDA of 60.72x is 675.4% above the industry average of 7.83x.
Street expects AMC’s EPS to decline 217% annually over the next five years. Additionally, EPS is expected to remain negative in 2022 and 2023. It has missed EPS estimates in two of the last four quarters. The stock is down 68% year-to-date to close the last trading session at $8.71.
AMC’s POWR ratings are consistent with this bleak outlook. It has an overall grade of D, which equates to Sell in our proprietary rating system. It also has an F grade for stability and feel.
click here for additional AMC ratings (Growth, Value, Momentum and Quality). AMC ranks last among six F-rated stocks Entertainment – Movies/Studios Industry.
Stock to buy:
Comcast Corporation (CMCSA)
CMCSA operates as a media and technology company worldwide. It works via cable communication; Media; studios; amusement parks; and sky segments.
On September 20, CMCSA announced a successful test of the last technical component required to deliver symmetric multi-gigabit speeds. The company plans to start live testing later this year and roll out 10G-powered symmetric multi-gig services to customers before the end of 2023.
CMCSA revenue increased 5.1% year-on-year to $30.02 billion for the second quarter ended June 30, 2022 operating result was $6.37 billion, up 15.6% year-on-year. Also, adjusted net income was $4.51 billion, up 14.3% year over year, while adjusted earnings per share were $1.01, up 20.2 % compared to the previous year.
In terms of expected EV/EBITDA, CMCSA comes in at 6.63x, down 15.4% from the industry average of 7.83x. Its expected P/cash flow of 5.35x is 36.9% lower than the industry average of 8.48x.
Analysts expect CMCSA revenue to grow 4.6% year over year to $121.69 billion in 2022. Earnings per share are projected to increase 11.1% year over year to $3.59 in 2022. EPS estimates were exceeded in all four subsequent quarters. CMCSA shares are marginally down on the day, closing the last trading session at $33.84.
CMCSA’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
CMCSA has a B grade for quality. It’s the first of nine Entertainment – TV and internet providers industry stocks. click here for the additional POWR ratings for Growth, Value, Momentum, Stability and Sentiment for CMCSA.
CMCSA shares traded at $33.24 per share on Wednesday afternoon, down $0.60 (-1.77%). Year-to-date, the CMCSA is down -32.80% versus a -18.73% gain in the benchmark S&P 500 over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentary. More…