While the entertainment industry has been under strain due to macroeconomic issues, its long-term prospects appear promising. However, I think it could be wise to add quality entertainment stock News Corporation (NWSA) today instead of The Walt Disney Company (DIS).
The entertainment industry is responding to changing customer preferences. Despite macroeconomic concerns, the sector’s growth prospects are positive, owing mainly to the growing use of digital technologies and increased demand for digital entertainment.
The media streaming market is estimated to grow at a 7.9% CAGR until 2028. The market is expanding due to rising demand for subscription-based services, increased availability of region-specific and unique content, and the popularity of live sports.
Furthermore, the Media & Entertainment Market is expected to grow at a 7.8% CAGR to $40.36 billion by 2028. The industry has been evolving with the rapid advancement of technology and the incorporation of new disruptors for generating profitable growth across the sector.
Take a detailed look at the stocks mentioned above:
Stock to Buy:
News Corporation (NWSA)
NWSA is a media and information services company that creates and distributes authoritative and engaging content and other products and services for consumers and businesses worldwide. It operates in six segments, Digital Real Estate Services; Subscription Video Services; Dow Jones; Book Publishing; News Media; and Other.
NWSA’s forward EV/Sales multiple of 1.49 is 16.5% lower than the industry average of 1.78. Its forward Price/Book multiple of 1.37 is 29.1% lower than the industry average of 1.93.
NWSA’s trailing-12-month asset turnover ratio of 0.58x is 19.9% higher than the industry average of 0.48x. Its trailing-12-month CAPEX/Sales of 5.05% is 25.7% higher than the industry average of 4.02%.
In the fiscal fourth quarter that ended June 30, 2023, NWSA’s total revenues came in at $2.43 billion. Its total segment EBITDA increased 8% year-over-year to $341 million. The company’s adjusted net income attributable to shareholders amounted to $78 million, while its adjusted EPS came in at $0.14 during the same quarter.
The consensus revenue estimate of $10.17 billion for the year ending June 2024 represents a 3% increase year-over-year. Its EPS is expected to grow 44.9% year-over-year to $0.71 for the same period. NWSA’s shares have gained 16.4% over the past nine months to close the last trading session at $20.76.
NWSA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NWSA has a B grade for Growth and Sentiment. It is ranked first among 11 stocks in the Entertainment – Media Producers industry. Click here for the additional POWR Ratings for Value, Momentum, Quality, and Stability for NWSA.
Stock to Sell:
The Walt Disney Company (DIS)
DIS operates as an entertainment company worldwide. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products.
DIS’ forward EV/Sales multiple of 2.32 is 29.9% higher than the industry average of 1.78. Its forward Price/Sales multiple of 1.77 is 51.7% higher than the industry average of 1.16.
DIS’ trailing-12-month gross profit margin of 32.77% is 33.6% lower than the industry average of 49.37%, while its trailing-12-month asset turnover ratio of 0.43x is 10.8% lower than the industry average of 0.48x.
For the third quarter that ended July 1, 2023, DIS’ net loss came in at $460 million, compared to net income of $1.41 billion in the same quarter of 2022. Also, its loss per share was $0.25, compared to EPS of $0.77 in the same period year ago.
In addition, the company’s total liabilities and equity were $203.78 billion as of July 1, 2023, compared to $203.63 billion as of October 1, 2022.
Street expects DIS’ revenue to come in at $89.05 billion for the year ending September 2023. Also, it's EPS is expected to come in at $3.69 for the same period.
Over the past year, the stock has lost 29.9% to close the last trading session at $85.96.
DIS’ has an overall D rating, equating to a Sell in our POWR Ratings system.
It also has a D grade for Value and Momentum. It is ranked #9 in the same industry. To see additional DIS ratings for Quality, Sentiment, Stability, and Growth, click here.
The Winner
Rapid technological improvements and rising demand for subscription-based services have transformed the media and entertainment industry. NWSA and DIS should benefit from industry tailwinds.
However, given DIS’ poor financial performance, low profitability, and high valuation multiples, its competitor NWSA emerges as a more appealing investment choice.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
NWSA shares were trading at $20.42 per share on Monday afternoon, down $0.34 (-1.64%). Year-to-date, NWSA has gained 12.92%, versus a 15.18% 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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