Record-high inflation has been taking a toll on the entertainment industry as consumers cut their entertainment expenses. However, the industry’s long-term prospects look impressive. While we think investors should avoid fundamentally weak entertainment stocks Warner Bros. (WBD) and AMC Entertainment (AMC) this fall, Comcast (CMCSA) could be a quality investment. Keep reading….
Historically high inflation has rummaged several industries worldwide, and the entertainment industry is no exception. Due to inflation, many consumers in the United States are cutting back on their typical entertainment expenses. According to a survey conducted earlier this year, around 30% said they planned to spend less on concerts, sporting events, and going out at night.
However, the pandemic has boosted streaming services, gaming, and user-generated content, and these trends are here to stay, while in-person entertainment demand is expected to live on. The global entertainment and media market is expected to grow at a CAGR of 10.4% until 2030.
Given the near-term headwinds, we think fundamentally weak entertainment stocks Warner Bros. Discovery, Inc. (WBD) and AMC Entertainment Holdings, Inc. (AMC) might be best avoided. But investors looking to invest in this sector could consider buying quality entertainment stock Comcast Corporation (CMCSA).
Stocks to Avoid:
Warner Bros. Discovery, Inc. (WBD)
Media company WBD provides content across various distribution platforms in approximately 50 languages worldwide. It also produces, develops, and distributes feature films, television, gaming, and other content in different physical and digital formats.
WBD’s total revenues increased 220.9% year-over-year to $9.83 billion for the second quarter ended June 30, 2022. However, its net loss came in at $3.42 billion compared to an income of $672 million in the previous period. Also, its loss per share came in at $1.50, compared to an EPS of $1.01 in the year-ago period.
WBD’s forward EV/EBITDA of 9.37x is 19.7% higher than the industry average of 7.83x. Its forward P/Cash Flow of 10.61x is 25.2% higher than the industry average of 8.48x.
WBD’s EPS is expected to decline 117.8% year-over-year to negative $0.31 in 2022. It missed consensus EPS estimates in all four trailing quarters. The stock has lost 43.9% year-to-date to close the last trading session at $13.21.
WBD’s POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The stock has an overall F rating, equating to a Strong Sell.
It has a D grade for Growth, Stability, Sentiment, and Quality. Click here to access the additional POWR Ratings for WBD (Value and Momentum). WBD is ranked last among 16 stocks in the F-rated Entertainment – Media Producers industry.
AMC Entertainment Holdings, Inc. (AMC)
AMC and its subsidiaries engage 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 50 highest-grossing theaters in the United States.
AMC’s total revenues came in at $1.17 billion for the second quarter ended June 30, 2022, up 162.3% year-over-year. However, its film exhibition costs increased 232.4% year-over-year to $328.70 million. Moreover, its cash and cash equivalents came in at $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 forward EV/EBITDA of 60.72x is 675.4% higher than the industry average of 7.83x.
Street expects AMC’s EPS to fall 217% per annum for the next five years. In addition, its EPS is expected to remain negative in 2022 and 2023. It missed EPS estimates in two of the trailing four quarters. The stock has lost 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 D grade, equating to Sell in our proprietary rating system. It also has an F grade for Stability and Sentiment.
Click here for additional AMC ratings (Growth, Value, Momentum, and Quality). AMC is ranked last among six stocks in the F-rated Entertainment – Movies/Studios industry.
Stock to Buy:
Comcast Corporation (CMCSA)
CMCSA operates as a media and technology company worldwide. It operates through Cable Communications; Media; Studios; Theme Parks; and Sky segments.
On September 20, CMCSA announced a successful test of the final technical component necessary to deliver multi-gigabit symmetrical speeds. The company plans to launch live trials later this year and deliver 10G-powered multi-gig symmetrical services to customers before the end of 2023.
CMCSA’s revenue increased 5.1% year-over-year to $30.02 billion for the second quarter ended June 30, 2022. Its operating income came in at $6.37 billion, up 15.6% year-over-year. Also, its adjusted net income came in at $4.51 billion, up 14.3% year-over-year, while its adjusted EPS came in at $1.01, up 20.2% year-over-year.
In terms of forward EV/EBITDA, CMCSA’s 6.63x is 15.4% lower than the industry average of 7.83x. Its forward P/Cash Flow of 5.35x is 36.9% lower than the industry average of 8.48x.
Analysts expect CMCSA’s revenue to increase 4.6% year-over-year to $121.69 billion in 2022. Its EPS is expected to grow 11.1% year-over-year to $3.59 in 2022. It surpassed EPS estimates in all four trailing quarters. CMCSA’s shares have lost marginally intraday to close the last trading session at $33.84.
CMCSA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
CMCSA has a B grade for Quality. It is ranked first among nine Entertainment – TV & Internet Providers industry stocks. Click here for the additional POWR Ratings for Growth, Value, Momentum, Stability, and Sentiment for CMCSA.
CMCSA shares were trading at $33.24 per share on Wednesday afternoon, down $0.60 (-1.77%). Year-to-date, CMCSA has declined -32.80%, versus a -18.73% rise in the benchmark S&P 500 index during the same period.
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 commentaries.
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