4 Media Stocks Ready to Continue Their Winning Streak in 2019

Media stocks did well in 2018 courtesy of strong demand for political advertising in the United States related to mid-term election, increasing investments in original content and focus on providing quality entertainment.

The solid performance, to an extent, is reflected in Invesco Dynamic Media ETF’s (PBS) year-to-date return of 7.9% against the S&P 500 composite’s decline of 1.4%.

However, declining ratings due to persistent cord-cutting continued to hurt traditional media companies in 2018. Consumers unfavorable disposition toward advertising also hit the industry hard.

Nevertheless, rapid technological advances and evolution of distribution platforms continue to lead to frequent changes to the media industry. Moreover, increase in Internet penetration and smartphone adoption is expected to aid media stocks reach a global audience by providing variety of content in 2019.

Further, scope for cross promotional content may help the companies reduce cost while attracting subscribers.

Streaming Service Providers Disrupting Media Landscape

Streaming services like Netflix NFLX, Hulu, HBO and Amazon Prime are spending aggressively on content. Higher production values, innovative content and growing involvement of Hollywood stars are the key catalysts driving subscriber base expansion.

However, stiff competition from these streaming platforms is negatively impacting traditional broadcast and cable programming companies’ subscriber base.

In order to stay relevant, traditional media companies are now following the path of streaming platforms. Media giants like Disney DIS, and Sinclair Broadcast Group are set to launch their own streaming services in 2019. The immense growth opportunity is also attracting non-media companies like AT&T and Apple.

In order to cater to the growing preference for digital and subscription services in place of linear pay television, most of the media companies are now offering a variety of alternative packages, including skinny bundles, at lower costs than traditional offerings.

However, increasing programming costs and retransmission fees are expected to drag down profitability of industry participants.

Media Consolidation to Continue in 2019

Year 2018 saw a series of consolidations in the media industry. After a prolonged regulatory battle, AT&T finally succeeded in acquiring Time Warner. The acquisition bought HBO under the telecom giant’s portfolio. Additionally, Comcast CMCSA acquired European pay-TV giant Sky Plc after a bidding process against 21st Century Fox.

Another high-profile acquisition, 21st Century Fox by Disney, is expected to be completed in early 2019. As per regulatory requirement, Disney has to divest 22 regional sports networks (RSNs) including YES Network, which it is acquiring from Fox. Reportedly, Sinclair Broadcast in partnership with CVC Capital is eyeing the assets. Amazon has also shown interest in YES Network.

Moreover, Nexstar Broadcasting Group NXST recently announced an agreement to acquire Tribune Media for $6.4 billion. The transaction is expected to close late in the third quarter of 2019.

How to Make the Right Pick?

Given the existence of a number of industry players, finding media stocks that are likely to continue their winning streak in 2019 can be a daunting task.

Zacks’ proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here we pick four stocks that have outperformed the S&P 500 year to date. Each of these stocks has a Zacks Rank #2 and market capital of more than $100 million.

Our Picks

Silver Spring based Discovery DISCA is expected to benefit from its solid content portfolio post the acquisition of Scripps Networks. The stock has a market capital of $14.85 billion.

Over the past 30 days, the Zacks Consensus Estimate for its 2019 earnings has increased 0.29% to $3.46, indicating year-over-year growth of 59.7%.

Discovery, Inc. Price and Consensus

Discovery, Inc. Price and Consensus | Discovery, Inc. Quote

Toronto, Canada-based Rogers Communications RCI is expected to benefit from subscriber gain in the wireless segment. Moreover, the company continues to expand LTE coverage, which is expected to expand its user base and drive the top line. The stock has a market capital of $27.06 billion.

Over the past 30 days, the Zacks Consensus Estimate for its 2019 earnings has remained unchanged at $3.49, indicating year-over-year growth of 7.8%.

Rogers Communication, Inc. Price and Consensus

 

Rogers Communication, Inc. Price and Consensus | Rogers Communication, Inc. Quote

Texas-based Nexstar Broadcasting Group is expected to benefit from its premiere local content programs. Additionally, renewal of distribution agreements with multichannel video programming distributors is likely to boost retransmission and digital revenues in the near term. The stock has a market capital of $3.85 billion.

Over the past 30 days, the Zacks Consensus Estimate for its 2019 earnings has increased 3.8% to $3.19. However, year-over-year earnings are expected to decline 14.5%.

Nexstar Broadcasting Group, Inc. Price and Consensus

Nexstar Broadcasting Group, Inc. Price and Consensus | Nexstar Broadcasting Group, Inc. Quote

Atlanta-based Gray Television GTN has a market capital of $1.53 billion.

Over the past 30 days, the Zacks Consensus Estimate for its 2019 earnings has declined 1.5% to $1.31. Also, year-over-year earnings are expected to decline 43%.

Gray Television is expected to become a diversified media company post Raycom Media merger. In addition to providing television content, the company will also provide “sports marketing, production and digital signage services”. Moreover, the combined entity will operate in 92 markets of which 85 markets will have rank1/rank 2 stations, per Nielsen ratings.

Gray Television, Inc. Price and Consensus

Gray Television, Inc. Price and Consensus | Gray Television, Inc. Quote

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Gray Television, Inc. (GTN) : Free Stock Analysis Report
 
Nexstar Broadcasting Group, Inc. (NXST) : Free Stock Analysis Report
 
Rogers Communication, Inc. (RCI) : Free Stock Analysis Report
 
Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
Discovery, Inc. (DISCA) : Free Stock Analysis Report
 
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