Chicago, IL – December 24, 2024 – Today, Zacks Equity Research discusses Comcast CMCSA, Charter Communications CHTR and Rogers Communication RCI.
Link: https://www.zacks.com/commentary/2386709/3-stocks-to-watch-from-a-prospering-cable-television-industry
The Zacks Cable Television industry players are focusing on bundled offerings and on-demand programming to counter challenges from cord-cutting as consumers shift away from traditional pay-TV options, including cable TV and satellite TV, to over-the-top streaming services with innovative content. The industry is evolving by leveraging its broadband infrastructure to meet changing consumer preferences and balancing traditional cable services with new streaming options to maintain relevance in the rapidly changing media landscape.
Cable companies are benefiting from consistent demand for high-speed broadband and WiFi devices, driven by hybrid work and learning environments. Increased media consumption has been a key catalyst for industry leaders like Comcast, Charter Communications and Rogers Communication.
The Zacks Cable Television industry comprises companies offering integrated data, video and voice services, including pay-TV and Internet-based streaming content. These firms provide equipment like satellite dishes, digital set-top receivers and remote controls. Cable companies typically build or lease network backbones from telecom companies and purchase licenses to distribute programmers' content over these networks. They license content from programmers and sell advertising spots.
The industry is capital-intensive, requiring significant investment in infrastructure, and is heavily regulated by the Federal Communications Commission. Industry players must balance the need for ongoing investment in technology and infrastructure with evolving consumer preferences and regulatory compliance to maintain competitiveness in the media landscape.
Further, the growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry players to alter their business models. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. These companies are also innovating in terms of original content to be competitive against streaming service providers.
High-Speed Internet Demand Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided cable television industry participants like Comcast and Charter. Improving Internet speed is fueling the demand for high-quality video and the trend of binge viewing. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth. Also, the work-from-home trend and online learning have boosted Internet usage, thus supporting industry participants.
Cord Cutting and Matured PayTV Industry Hurting Prospects: The cable television industry is witnessing the rapid evolution of distribution platforms as well as embracing new players and advanced technologies. Declining profits of residential video services due to rising programming costs and retransmission fees have made survival difficult for traditional companies.
Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it particularly tricky for traditional cable television companies to maintain a viewer base. Furthermore, the traditional pay-TV industry is maturing with widespread consolidation. Moreover, residential voice service revenues are declining due to the rising shift to wireless voice services.
Softness in Advertising Demand Impeding Business Growth: Persistent inflation and higher interest rates are having a detrimental effect on ad spending. Besides, the challenge with TV ads is that marketers have difficulty getting actionable metrics and insights such as attribution data. At this time, marketers must look for outside-the-box solutions to extract conversion data from offline media.
TV has taken a secondary role in most marketing strategies due to the growing influence of digital marketing. Many marketers are increasing ad spending on digital mediums due to their unmatched ability to deliver personalized messages that are easy to measure. Cable TV players are set to face competition for ad dollars from streaming service providers like Netflix and Disney, which are raising prices and introducing cheaper ad-supported packages now that their subscriber growth has slowed.
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #85, which places it in the top 34% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
The Zacks Cable Television industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 13.1% over this period against the broader sector's increase of 12.9%. The S&P 500 has risen 25.5% in the said time frame.
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 6.82X compared with the S&P 500's 18.48X and the sector's 10.23X.
Over the past five years, the industry has traded as high as 15.61X, as low as 6.59X and at the median of 9.3X.
Comcast: The company is riding on strong momentum in the wireless business. Its strategy to provide high-speed Internet at an affordable price plays a pivotal role in providing connectivity and improving customer experience. The company announced a collaboration with Broadcom and Charter Communications to develop Unified DOCSIS chipsets.
Comcast's Epic Universe launch in May 2025 is expected to drive the top line by enhancing customer engagement. Epic Universe aims to not only expand Comcast's Experience portfolio offering, this will also make it a leader in the U.S. theme park segment by launching the biggest and most technologically advanced park for customers with more than 50 experiences throughout the premises. Its streaming service, Peacock, is a key catalyst in driving broadband sales.
The company has made a significant move in the streaming market with the launch of NOW TV Latino, a new service targeting Spanish-speaking audiences. Priced at $10 per month with no contract or additional fees, the offering includes more than 25 live Spanish-language streaming channels and access to Peacock Premium. Comcast announced a partnership with EA and Peacock to integrate EA SPORTS FC, Peacock and Xfinity to offer in-game customization. The company's strong free cash flow generation ability is noteworthy.
Shares of this Zacks Rank #3 (Hold) company have lost 0.7% in the past six-month period. The Zacks Consensus Estimate for Comcast's 2024 earnings has moved north by a penny to $4.25 per share in 60 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Charter Communications: This Zacks Rank #3 company is benefiting from strong growth in residential mobile service and commercial business. The company's expanding Internet subscriber base and strong mobile line growth boost prospects. The company launched two new value-oriented Internet-delivered streaming TV packages, Spectrum TV Stream and Spectrum Stream Latino, for Spectrum Internet customers. Charter Spectrum announced its new distribution agreement with Warner Bros. Discovery. Spectrum TV Select customers can access Max with ads at no extra cost, offering content from HBO, Warner Bros., DC and more.
Charter's broadband service continues to gain traction among small and medium businesses. The company's initiatives to evolve its network services to improve speed and latency have been a key catalyst. Its partnership with Cisco is helping it offer enhanced cybersecurity solutions to enterprises, thereby driving the adoption of Spectrum enterprise solutions.
Charter's shares have gained 23% in the past six-month period. The consensus mark for 2024 earnings has moved north by 3% in the past 60 days to $33.48 per share.
Rogers Communication: This Zacks Rank #3 company continues to benefit from mobile phone and Internet subscriber additions. The company's investments in the 5G spectrum and partnerships with leading real estate companies to support 5G infrastructure deployment are catalysts. Rogers has expanded its 5G network to more than 2,407 communities, which is expected to be a key growth driver in the long haul.
Further, the acquisition of Shaw Communications is expected to expand its user base. Rogers will expand its market share from a predominantly eastern Canada focus into the sparsely populated regions of Western Canada on the back of Shaw's wireline, or cable and Internet, business. Within five years, Rogers looks to invest at least $2.5 billion to enhance and expand 5G coverage in Western Canada and at least $3 billion in additional network, services and technology investments.
Shares of the company have plunged 19.1% in the past six-month period. The consensus mark for 2024 earnings has moved south by 0.6% to $3.55 per share in the past 30 days.
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