Walt Disney (DIS), Sony (SONY), and News (NWSA) - Buy, Hold, or Sell?

The entertainment industry is well-positioned for long-term growth due to increased internet penetration, technological advances, entry into newer markets, a growing content pool, and AI tools for content refinement and personalized recommendations. However, the industry faces the challenges of changing consumer preferences and heightened competition from new entrants.

Considering these factors, it could be wise to buy fundamentally strong entertainment stock News Corporation (NWSA). At the same time, it could be wise to wait for a better entry point in Sony Group Corporation (SONY).  On the other hand, avoiding The Walt Disney Company (DIS) could be wise, given its poor fundamentals.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the entertainment industry is well-positioned for growth.

The entertainment industry is continuously adapting to meet changing consumer preferences and needs. The entertainment industry embraces advanced digital tools and technology, leading to a new era of creativity, flexibility, and cost-effective offerings tailored to consumer needs. Generative AI in the media and entertainment industry is expected to reach $12.08 billion by 2032, growing at a CAGR of 26.7%.

However, the industry also faces challenges such as growing content costs, piracy, regulatory issues, subscriber churn, etc. The industry has no entry barriers, making it easier for newer players to enter. This makes the industry highly competitive.

The global movies and entertainment market’s revenue is expected to reach $169.62 billion by 2030, growing at a CAGR of 7.2%.

Let’s discuss these stocks in detail.

Stock to Buy:

News Corporation (NWSA)

NWSA creates and distributes authoritative, 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 trailing-12-month asset turnover ratio of 0.58x is 19.9% higher than the industry average of 0.48x. Likewise, its trailing-12-month CAPEX/Sales of 5.05% is 25.6% higher than the industry average of 4.02%.

For the fiscal fourth quarter 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 came in at $78 million. In addition, its adjusted EPS came in at $0.14.

Street expects NWSA’s EPS and revenue for the quarter ending December 31, 2023, to increase 61.9% and 3.2% year-over-year to $0.23 and $2.60 billion, respectively. Over the past year, the stock has gained 29.9% to close the last trading session at $19.98.

NWSA’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Growth and Sentiment. It is ranked first out of 10 stocks in the Entertainment – Media Producers industry. To see the additional ratings of NWSA for Value, Momentum, Stability, and Quality, click here.

Stock to Hold:

Sony Group Corporation (SONY)

Headquartered in Tokyo, Japan, SONY designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets worldwide. The company distributes and produces software, digital networks, gaming consoles, music, animation, television movies, miniseries, and other television programs.

In terms of the trailing-12-month EBIT margin, SONY’s 8.70% is 18.2% higher than the 7.36% industry average. Likewise, its 5.19% trailing-12-month Capex/Sales is 60.3% higher than the industry average of 3.24%.

On the other hand, the stock’s 25.22% trailing-12-month gross profit margin is 28.8% lower than the industry average of 35.41%. Its 2.72% trailing-12-month Return on Total Assets is 29.4% lower than the industry average of 3.85%.

SONY’s revenue for the first quarter ended on June 30, 2023, increased 32.9% year-over-year to ¥2.96 trillion ($19.82 billion). Its cash and cash equivalents at the end of the period increased 11.7% year-over-year to ¥1.53 trillion ($10.25 billion).

Its operating income declined 30.6% year-over-year to ¥253.04 billion ($1.69 billion). The company’s net income attributable to SONY declined 16.7% year-over-year to ¥217.55 billion ($1.46 billion). Also, net income per share decreased 16.2% year-over-year to ¥175.67 per share.

For the quarter ending September 30, 2023, SONY’s revenue is expected to increase 4.3% year-over-year to $19.38 billion. Its EPS for the same quarter is expected to decline 21.9% year-over-year to $1.13. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 23.6% to close the last trading session at $82.78.

SONY’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system.

It has a C grade for Value, Momentum, Stability, and Quality. It is ranked #2 in the same industry. Click here to see SONY’s rating for Growth and Sentiment.

Stock to Sell:

The Walt Disney Company (DIS)

DIS operates as an entertainment company worldwide. The company engages in the film and episodic television content production and distribution activities. It operates through two segments: Disney Media and Entertainment Distribution; and Disney Parks, Experiences and Products.

In terms of the trailing-12-month net income margin, DIS’s 2.56% is 28.8% lower than the 3.60% industry average. Likewise, its 32.77% trailing-12-month gross profit margin is 33.6% lower than the industry average of 49.37%. Furthermore, the stock’s 2.37% trailing-12-month Return on Common Equity is 45.8% lower than the industry average of 4.37%.

For the third quarter that ended July 1, 2023, DIS’ net loss attributable to DIS came in at $460 million, compared to a net income attributable of $1.41 billion in the prior-year quarter. The company’s loss per share came in at $0.25, compared to an EPS of $0.77 in the prior-year quarter.

Over the past year, the stock has declined 19.4% to close the last trading session at $80.13.

DIS’ weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.

It has a D grade for Value, Momentum, and Quality. Within the Entertainment – Media Producers industry, it is ranked #8. In total, we rate DIS on eight different levels. Beyond what we stated above, we also have given DIS grades for Growth, Stability, and Sentiment. Get all the DIS 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.

2024 Stock Market Outlook >

DIS shares were trading at $80.55 per share on Friday afternoon, up $0.42 (+0.52%). Year-to-date, DIS has declined -7.29%, versus a 12.77% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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