Despite the macro issues, consumer spending on entertainment services remained stable, especially in the digital space. While we think investors might consider adding quality entertainment stock Comcast (CMCSA) to their watchlist now, Walt Disney (DIS) and Dolphin Entertainment (DLPN) could be best avoided. Keep reading.
Amid looming recession fears, job cuts in the entertainment industry are widespread. Steve Ross, a USC history professor who has written books about labor and class in Hollywood, said, “It sure is one of the largest sets of cuts. And I think we’re going to see more cuts.”
However, despite the macro headwinds, including soaring prices, consumer spending remained stable on entertainment services. Amid rapid digitalization, changing consumer preferences, and increasingly engaging content, viewers in the United States spent over $34 billion in 2022 for digital home entertainment.
Moreover, according to Nielsen, broadcast content viewing rose 2.1% in January 2023, led by a 55% jump in sports viewing and a nearly 30% increase in viewing to the drama genre. In addition, the online entertainment market is expected to grow at a CAGR of 20.6% from 2023 to 2028.
Given the backdrop, investors could consider buying quality entertainment stock Comcast Corporation (CMCSA). However, fundamentally weak stocks, The Walt Disney Company (DIS) and Dolphin Entertainment, Inc. (DLPN), might be best avoided.
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 January 26, 2023, Brian L. Roberts, CMCSA’s Chairman, and CEO, said, “We are excited to begin the new year as an innovative leader in large profitable markets with a strong balance sheet and a strategy to drive incremental returns and bring outstanding content and experiences to our customers.”
CMCSA’s forward EV/EBITDA of 7.40x is 15.3% lower than the industry average of 8.73x. Its forward Price/Book of 1.91x is 13.4% lower than the industry average of 2.20x.
Its trailing-12-month gross profit margin of 68.53% is 38.1% higher than the industry average of 49.63%, while its trailing-12-month net income margin of 4.42% is 35.9% higher than the industry average of 3.25%.
CMCSA’s revenue came in at $30.55 billion for the fourth quarter that ended December 31, 2022, up marginally year-over-year. Its broadband revenue increased 5.4% year-over-year to $6.18 billion, while its adjusted EPS came in at $0.82, representing a 6.5% year-over-year increase.
Analysts expect CMCSA’s revenue to increase 2.9% year-over-year to $123.87 billion in 2024. Its EPS is expected to increase by 7% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained marginally to close the last trading session at $39.12.
CMCSA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMCSA has a B grade for Stability and Quality. In the Entertainment – TV & Internet Providers industry, it is ranked first among nine stocks. Click here for the additional POWR Ratings for Growth, Value, Momentum, and Sentiment for CMCSA.
Stocks to Avoid:
The Walt Disney Company (DIS)
DIS and its subsidiaries operate as an entertainment company worldwide. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products.
On February 8, 2023, DIS declared that the company would eliminate 7,000 jobs from its workforce. Given the uncertain economic outlook, DIS plans to cut $5.50 billion in costs, including $3 billion in content savings through its mass layoff.
DIS’ forward EV/EBITDA of 15.63x is 78.9% higher than the industry average of 8.73x. Its forward Price/Sales of 2.13x is 60.4% higher than the industry average of 1.33x.
Its trailing-12-month gross profit and EBITDA margins of 33.40% and 14.10% are 32.7% and 25.6% lower than the industry averages of 49.63% and 18.95%.
DIS’ total Disney paid subscribers decreased marginally year-over-year to 161.80 million. Its cash and cash equivalents came in at $8.47 billion for the period that ended December 31, 2022, compared to $11.62 billion for the period that ended October 1, 2022.
Street expects DIS’ EPS to fall 12% year-over-year to $0.95 for the quarter ending March 2023. The stock has lost 31.2% over the past year to close the last trading session at $105.22.
DIS’ POWR Ratings reflect its poor prospects. It has an overall D grade, equating to a Sell in our POWR Ratings system.
It has a D for Value, Momentum, and Quality. It is ranked #10 out of 16 stocks in the Entertainment – Media Producers industry. To see DIS ratings for Growth, Stability, and Sentiment, click here.
Dolphin Entertainment, Inc. (DLPN)
DLPN and its subsidiaries operate as an independent entertainment marketing and premium content development company in the United States. It operates in two segments, Entertainment Publicity and Marketing, and Content Production.
DLPN’s trailing-12-month negative EBITDA and net income margins of 3.35% and 10.47% are lower than the industry averages of 18.95% and 3.25%.
DLPN’s net loss came in at $1.31 million for the quarter that ended September 30, 2022, compared to an income of $141,651 in the year-ago period. Its loss per share came in at $0.14, compared to an EPS of $0.02 in the previous period.
Moreover, its cash and cash equivalents came in at $4.45 million for the period that ended September 30, 2022, compared to $7.69 million for the period that ended December 31, 2021.
DLPN missed EPS estimates in three of four trailing quarters. Over the past month, the stock has lost 16.9% to close the last trading session at $2.21.
DLPN has an overall D rating, equating to a Sell in our POWR Ratings system.
It has an F grade for Quality and a D for Value. It is ranked #18 in the Entertainment – Media Producers industry. Get additional DLPN ratings for Growth, Momentum, Stability, and Sentiment here.
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CMCSA shares were unchanged in premarket trading Tuesday. Year-to-date, CMCSA has gained 12.74%, versus a 6.49% rise in the benchmark S&P 500 index during 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 commentaries.
The post 1 Entertainment Stock to Watch Right Now and 2 to Avoid appeared first on StockNews.com
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