Media stocks have been advancing in general since the beginning of the year. In this article, 3 outperforming media stocks with below-industry-average P/Es will be presented, including CBS Corporation (CBS), The Walt Disney Company (DIS), and Time Warner Inc. (TWX).
Performance and P/E Comparison
CBS Corporation (CBS)
The Walt Disney Company (DIS)
Time Warner Inc. (TWX)
+7.33% (S&P 500)
Sources: Google Finance and Morningstar, February 19, 2013
CBS is a mass media company, operating in entertainment, cable networks, publishing, local broadcasting and outdoor segments. CBS had been outperforming the market with +17.94% gain YTD and had been trading in the range of $28.85-$45.87 in the past 52 weeks. CBS has a high beta of 2.28.
On February 14, 2013, CBS reported Q4, 2012 earnings of 64 cents a share, up 14.3% from 56 cents earned in the year-ago quarter. However, the earnings missed the Zacks Consensus Estimate of 70 cents per share. Total revenue of $3,698M for Q4 fell short of the Zacks Consensus Estimate of $3,946M. According to Zacks' report, "The company remains optimistic and expects growth momentum to continue in 2013 based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent. CBS is eyeing around $1 billion in retransmission and reverse compensation revenues by 2017. The company also remains positive about CBS Television Network being the growth driver." The company also announced plans for $1 billion in accelerated share repurchases.
There are a few positives factors for CBS:
- Lower P/E of 19.1 (vs. the industry average of 27.2)
- Lower forward P/E of 13.4 (vs. S&P 500's average of 14.0)
- Higher revenue growth (3 year average) of 2.7 (vs. the average of 1.5)
- Higher operating margin and net margin of 21.2% and 11.2% (vs. the averages of 19.4% and 8.1%)
- Higher ROE of 15.6 (vs. the average of 12.2)
- Lower debt/equity of 0.6 (vs. the average of 1.1)
CBS has an overall rating of "Buy" with an average target price of $41.33 from the analysts, according to the data from StreetInsider.com.
The Walt Disney Company
The Walt Disney Company is a diversified worldwide entertainment company, operating in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. DIS had been outperforming the market with +11.92% gain YTD. DIS had been trading in the range of $40.88-$55.95 in the past 52 weeks. DIS has a beta of 1.19.
DIS raised $800M with its first sale of floating-rate debt in almost 5 years. Disney sold two-year notes that yield one basis point less than the three-month London interbank offered rate, according to data compiled by Bloomberg. Disney was among a small club of companies able to sell theirs at rates below the London interbank offered rate, or Libor, since the financial crisis. According to Anne Daley, senior syndicate banker at Barclays,
"It definitely shows confidence returning," she said. "After the credit crisis, front-end accounts started to pull in the reins on how far out they would buy bonds. The market for [longer-dated issues such as] two- and three-year floating-rate notes had dried up."
There are a few positives factors for DIS:
- Lower P/E of 18.0 (vs. the industry average of 24.2)
- Higher revenue growth (3 year average) of 5.4 (vs. the average of -1.7)
- Higher operating margin and net margin of 20.0% and 13.1% (vs. the averages of 17.8% and 10.1%)
- Higher ROE of 14.3 (vs. the average of 11.6)
DIS has an overall rating of "Buy" with an average target price of $52.40 from the analysts, according to the data from StreetInsider.com.
Time Warner Inc.
Time Warner, Inc. is a media and entertainment company, engaged in interactive services, cable systems, filmed entertainment, television networks and publishing. TWX had been outperforming the market with +12.46% increase YTD and had been trading in the range of $33.62-$53.90 in the past 52 weeks. TWX has a beta of 1.16.
Time Warner, currently the largest U.S. magazine publisher, has struggled to shift the business from printing to digital media. Time Warner is considering selling most of its magazines to Meredith Corp. (MDP), including People and Entertainment Weekly. Time Warner intends to keep Time, Sports Illustrated and Fortune magazines, according to the report from Bloomberg. By selling these magazines, Time Warner could unlock value and improve the growth profile for the company, according to John Janedis, an analyst at UBS AG in New York.
There are a few positives factors for TWX:
- Lower P/E of 20.1 (vs. the industry average of 24.2)
- Lower forward P/E of 13.3 (vs. the S&P 500's average of 14.0)
- Higher revenue growth (3 year average) of 3.0 (vs. the average of -1.7)
- Higher operating margin of 19.4 (vs. the average of 17.8)
TWX has an overall rating of "Buy" with an average target price of $49.44 from the analysts, according to the data from StreetInsider.com.
In short, while above three stocks are posting solid gains, conservative investors may want to establish the long-term positions after the stocks pull back to below analysts' target prices or leverage the options strategy (credit short put strategy) to acquire the stock at a lower price.
Note: All prices are quoted from the closing of February 19, 2013, and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.