The media and entertainment industry is evolving thanks to advances in technology and changes in behavior caused by the pandemic. The remote lifestyle sparked by the pandemic boosted demand for streaming services, games, and user-generated content.
Corresponding PwC’s Global Entertainment & Media OutlookAfter a 2.3% decline in 2020 due to the pandemic, entertainment and media revenue rose sharply by 10.4% to $2.34 trillion in 2021. As the industry becomes more digital, mobile, and youth-focused, virtual reality (VR) and games are likely to be key drivers of its growth.
The entertainment market in the United States is expected to reach $7.44 billion in 2022 and $10.01 billion in 2026. growing at a CAGR of 7.7%.
However, discretionary spending is expected to ease amid rising interest rates and other macro headwinds. Many consumers are cutting back on their entertainment costs. Fundamentally weak entertainment companies are struggling to stay afloat as demand slows.
CJ Bangah, Principal for Tech, Media, and Telecom Customer Transformation Consulting at PwC said: “With rising interest ratesMedia companies have to make tough decisions about what to prioritize, where to invest – and where to find cost savings.”
Given the industry’s solid long-term growth prospects, quality entertainment stocks TEGNA (TGNA) and Lee Enterprises (LEE) could be solid buys now. Given Warner Bros. Discovery’s (WBD) fundamental weakness and bleak growth prospects, the stock is best avoided right now.
Stocks to buy:
TEGNA Inc. (TGNA)
TGNA is a media agency that operates TV stations, multicast networks and VAULT studios, providing consumers with news content across platforms. The company also offers solutions for advertisers through TEGNA Marketing Solutions. It operates approximately 64 television stations in over 51 markets across the United States.
On November 18, Standard General’s acquisition of TGNA received approval from Team Telecom. In February 2022, TGNA and a Standard General subsidiary entered into a definitive agreement under which Standard General’s subsidiary would acquire TGNA for $24 per share in cash.
Soo Kim, founding partner of Standard General, said: “Standard General has a proven track record of increasing investment in local journalism and introducing new ideas and perspectives to local broadcasting. The upcoming transaction with TEGNA is about investing in and strengthening local broadcasters, which will bring value to our viewers and communities.”
On October 26, TGNA’s board of directors declared a regular quarterly dividend of 9.5 cents per share, payable on January 3, 2023 to shareholders of record as of the close of business on December 9, 2022.
TGNA’s dividend payouts have grown by CAGRs of 10.7% and 3.5% over the past three and five years, respectively. TGNA pays a dividend of $0.38 per share annually, which translates to a 1.95% yield on the current price.
For the third quarter of fiscal 2022 ended September 2022, TGNA’s revenue increased 6.2% year over year to $803.11 million. It is operating result grew 9.9% year over year to $232.26 million. The company’s net income increased 13.6% year over year to $146.16 million, while earnings per share were $0.65, up 12.1% year over year.
Analysts expect TGNA’s revenue to grow 10.6% year over year to $3.31 billion for the fiscal year ended December 2022. The company’s year-to-date EPS is expected to rise 34.3% year over year to $2.89. The stock is up 2.3% year-to-date to close the last trading session at $19.71.
TGNAs POWR ratings reflect its promising prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. POWR ratings are calculated considering 118 different factors, each weighted optimally.
The stock has a B grade for quality. Within the Entertainment – Broadcaster industry, it is number 3 of 12 stocks.
click here to view TGNA’s additional POWR ratings for Mood, Value, Growth, Momentum and Stability.
Lee Enterprises, Incorporated (LEE)
LEE is a leading provider of local news and information, as well as an advertising platform with daily newspapers, digital products and marketing services. It focuses on three categories: subscriptions for its product offerings, advertising and marketing solutions for local advertisers, and digital services for its customers.
On September 9th, LEE added a 12-strong team of seasoned, experienced investigative and data-driven reporters to provide the industry’s most impactful local journalism. This demonstrates the company’s commitment to supporting journalism that emphasizes responsibility and transforms lives.
Additionally, in 2022, Lee newsrooms hired more than 60 summer interns through a program that put undergraduate and graduate journalists on the job in digital-first journalism across dozens of newsrooms. The company is prioritizing the future of local journalism by expanding its internship program.
LEE digital operating revenue increased 26.6% year-on-year to $46.19 million, while total digital revenue increased 26.8% year-on-year to $61.48 million for the third ended June 26, 2022 fiscal quarter increased. Subscription revenue was $89.05 million, up 0.3% year over year.
For fiscal 2023, analysts expect LEE’s earnings per share to rise 31.2% year over year to $2.86. The company’s revenue for the next fiscal year is expected to increase 1.8% year over year to $792.40 million. The stock gained 2.8% in the most recent trading session.
LEE’s POWR ratings reflect its strong outlook. The stock has an overall rating of A, which is a Strong Buy in our proprietary rating system.
The stock has a B grade for Stability, Value, and Sentiment. Within the Entertainment – Publisher Industry, it topped the list of 7 stocks.
click here to show LEE’s additional score for dynamism, growth and quality.
Stock for sale:
Warner Bros. Discovery, Inc. (WBD)
WBD is a mass media and entertainment conglomerate offering the world’s most diverse portfolio of content, brands and franchises for television, cinema, streaming and gaming in over 50 languages.
Profitability remains an issue for investors as confidence in streaming fundamentals dwindles. WBD reiterated its 2022 Adjusted EBITDA guidance of between $9 billion and $9.5 billion, down from a previous guidance of $10 billion.
The WBD sports staff was reduced by 10%. Previously, 14% of HBO and HBO Max employees were laid off in Augustand in October, 26% of the staff in the screenwriting, screenwriting and animation departments were laid off. WBD Sports Chairman and CEO Luis Silberwasser believes the company had to make cuts to remain competitive in the sports media market.
In the third quarter of fiscal 2022 ended Sept. 30, WBD’s costs and expenses increased 325.8% year over year to $12.01 billion. The company reported an operating loss of $2.19 billion compared to an operating profit of $329 million in the year-ago quarter. Net loss available to WBD was $2.31 billion and $0.95 per share compared to net income of $156 million and $0.24 per share a year ago.
Analysts expect WBD to post a loss of $0.13 per share for the fourth quarter of fiscal 2022 (ended December 2022). In addition, the company is expected to report a loss per share of $1.56 for the current fiscal year. The stock is down 15.2% over the past month and 55.2% year-to-date to close the last trading session at $11.34.
WBD’s poor prospects are also reflected in their POWR ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.
The stock has an F rating for sentiment and a D rating for stability and quality. Within the F rating Entertainment – Media Producers 15th out of 16 stocks in the industry.
In addition to the above, we also have WBD ratings for Value, Momentum and Growth. Get all WBD ratings here.
WBD shares traded at $11.34 per share on Thursday afternoon, up $0.54 (+5.00%). Year-to-date, WBD is down -55.53% versus a -14.29% gain in the benchmark S&P 500 over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. With her fundamental approach to analyzing stocks, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. More…