The entertainment industry is well-positioned to deliver stable returns thanks to rising consumer demand and the adoption of advanced technologies. The industry's ability to adapt and innovate in response to changing consumer preferences is bolstering its potential for long-term growth.
Given the industry’s growth prospects, investors could consider buying fundamentally sound entertainment stocks Comcast Corporation (CMCSA), International Game Technology PLC (IGT) and Imax Corporation (IMAX) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the entertainment industry.
The entertainment industry is expanding rapidly, thanks to the internet's revolution. With access to music and videos from anywhere, it offers numerous entertainment possibilities. The industry is currently experiencing an all-time high growth, with potential for further milestones in the future.
The home entertainment market is estimated to reach $384.25 billion by 2030, with a CAGR of 4.2%. Due to its ability to provide an enhanced and immersive audio experience, audio equipment dominates the product category section of the home entertainment industry.
According to Statista, total revenue in the entertainment market is anticipated to expand at a CAGR of 11.4% to reach $53.13 billion by 2027. Moreover, investors’ interest in gaming stocks is evident from the VanEck Vectors Video Gaming and eSports ETF’s (ESPO) 11.9% returns over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three entertainment stocks.
Comcast Corporation (CMCSA)
CMCSA operates as a media and technology company worldwide. It operates through Residential Connectivity & Platforms, Business Services Connectivity, Media, Studios, and Theme Parks segments.
CMCSA’s forward EV/EBITDA multiple of 7.16 is 15.4% lower than the industry average of 8.46. Its forward EV/EBIT multiple of 11.44% is 27.7% lower than the industry average of 15.83.
CMCSA’s trailing-12-month ROCE of 18.60% is 446% higher than the industry average of 3.41%. Its trailing-12-month net income margin of 12.53% is 290.1% higher than the industry of 3.21%.
For the third quarter that ended September 30, 2023, CMCSA’s revenue increased marginally year-over-year to $30.12 billion. Its adjusted EBITDA grew 5.1% from the year-ago value to $9.96 billion. Also, its adjusted net income and non-GAAP EPS increased 6.2% and 12.5% year-over-year to $4.48 billion and $1.08, respectively.
Analysts expect CMCSA’s revenue to increase 2.4% year-over-year to $123.55 billion for the year ending December 2024. Its EPS is expected to grow 9.9% year-over-year to $4.28 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 16% over the past year to close the last trading session at $41.61.
CMCSA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMCSA also has a B grade for Stability, Sentiment and Quality. It is ranked first among the 9 stocks in the Entertainment - TV & Internet Providers industry. Click here for the additional POWR Ratings for Growth, Value and Momentum for CMCSA.
International Game Technology PLC (IGT)
Headquartered in London, the United Kingdom, IGT operates and provides an integrated portfolio of gaming technology products and services, including online and instant lottery systems, iLottery, instant ticket printing, electronic gaming machines, iGaming, sports betting, etc. It operates in three segments: Global Lottery; Global Gaming; and Digital & Betting.
IGT’s forward Price/Cash Flow multiple of 6.66 is 29.6% lower than the industry average of 9.46. Its forward EV/EBITDA multiple of 6.48% is 34.4% lower than the industry average of 9.87.
IGT’s trailing-12-month EBIT margin of 22.96% is 207.5% higher than the industry average of 7.47%. Its trailing-12-month EBITDA margin of 34.61% is 213.6% higher than the industry average of 11.04%.
During the third quarter ended September 30, 2023, IGT’s revenue and adjusted EBITDA stood at $1.07 billion and $433 million, up marginally and 7.7% year-over-year, respectively. Its total operating income grew 13.3% year-over-year to $239 million.
The consensus revenue estimate of $4.28 billion for the year ending December 2023 represents a marginal increase year-over-year. Its EPS is expected to come in at $1.95 for the same period. IGT’s shares have gained 16.7% year-to-date to close the last trading session at $26.47.
IGT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first among the 25 stocks in the Entertainment – Casinos/Gambling industry. It has a B grade for Growth, Sentiment and Quality. To see additional IGT’s ratings for Value, Stability and Momentum, click here.
Imax Corporation (IMAX)
Headquartered in Mississauga, Canada, IMAX is a global technology platform for entertainment events. The company’s segments include IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
IMAX’s forward non-GAAP PEG multiple of 0.04 is 97.7% lower than the industry average of 1.54. Its forward EV/EBITDA multiple of 8.05% is 4.9% lower than the industry average of 8.46.
IMAX’s trailing-12-month levered FCF margin of 19.54% is 155.9% higher than the 7.64% industry average. Its trailing-12-month ROTA of 2.99% is 143.9% higher than the 1.22% industry average.
In the fiscal third quarter that ended September 30, 2023, IMAX’s total revenue increased 51% year-over-year to $103.90 million, while its gross margin grew 98% from the year-ago quarter to $62.70 million.
Its adjusted net income was $19.40 million, compared to a loss of $3 million in the prior-year quarter. Also, the company’s adjusted income per share was $0.35, compared to a loss of $0.05 in the prior-year quarter.
Street expects IMAX’ revenue to increase 28.9% year-over-year to $387.67 million for the year ending December 2023. Its EPS is expected to grow significantly year-over-year to $0.90 for the same period. It surpassed EPS estimates in three out of four trailing quarters. The stock has gained 6.9% year-to-date to close the last trading session at $15.67.
It’s no surprise that IMAX has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Growth and Quality. It is ranked first among 6 stocks in the Entertainment - Movies/Studios industry.
Beyond what is stated above, we’ve also rated IMAX for Value, Stability, Sentiment, Momentum and Quality. Get all IMAX ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CMCSA shares were trading at $41.94 per share on Wednesday morning, up $0.33 (+0.79%). Year-to-date, CMCSA has gained 23.45%, versus a 20.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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