The Zacks cable television industry benefits from the constant demand for high-speed broadband. Increased demand for Wi-Fi devices and wireless internet has been a growth driver. Increased media consumption due to a hybrid work and learning environment has been a key catalyst for industry players such as Comcast CMCSA, Charter Communications CHTR and Rogers Communications RCI.
The industry is witnessing an increase in cord cuts on pay-TV options, including cable TV and satellite TV, due to increased competition from innovative content offerings from over-the-top service providers. the-top. The focus on providing bundled offers and on-demand programming content that responds to changing consumer behavior bodes well for streaming players.
Description of the industry
The Zacks cable television industry primarily includes companies that provide integrated data, video, and voice services. Industry participants offer pay television services, including Internet streaming content. These companies provide equipment such as satellite dishes, digital decoders and remote controls. Typically, cable companies build their network backbone or lease physical access to the network backbone from telecommunications companies. These companies purchase licenses to provide subscribers with access to cable television channels owned by programmers and distributed over the network backbone. Cable companies also sell commercials on their channels. The industry needs high investments in infrastructure to improve its services. The industry is heavily regulated by the Federal Communications Commission (FCC).
4 trends shaping the future of the cable industry
Lean Bundles, Growth Boosting Original Content: Cable television’s ability to generate advertising revenue outside of traditional television platforms, such as websites and any digitally consumed platform, provides increased reach for targeted advertising. Nevertheless, the unfavorable disposition of consumers, especially towards advertising, has hit industry players hard. In addition, the growing consumer preference for digital and subscription services instead of linear pay-TV and outright rental or purchase has forced industry players to change their business models. Cable companies now offer a variety of alternative packages, including skinny packages, which come at lower costs than traditional offerings. These companies are also innovating in terms of original content to compete with streaming service providers.
Key Driver of High Speed Internet Demand: The growing demand for high-speed Internet, including broadband, has helped players in the cable television industry like Comcast and Charter. Improved internet speed is fueling the demand for high quality videos and the trend of binge watching. In addition, the strengthening of the broadband ecosystem in international markets, as well as the proliferation of smart TVs, are expected to drive growth. Additionally, the growing trend of working from home and the practice of online learning due to coronavirus-induced quarantines and lockdowns has boosted internet usage, thereby supporting industry players.
Cord cutting and matured pay TV industry outlook: The cable television industry is witnessing the rapid evolution of distribution platforms as well as the adoption of new players and advanced technologies. Declining profits for home video services due to rising programming costs and retransmission fees have made it difficult for traditional businesses to survive. Additionally, the increased need for on-demand content has led to the proliferation of streaming service providers, making it especially difficult for traditional cable television companies to maintain a viewer base. In addition, the traditional pay-TV industry is maturing with widespread consolidation. Additionally, residential voice service revenues are declining due to the increasing shift to wireless voice services.
Weak advertising demand is hampering business growth: The challenge with TV ads is that marketers struggle to get actionable metrics and insights like attribution data. Today, marketers have to look for innovative solutions to extract conversion data from offline media. Television has taken a secondary role in most marketing strategies due to the growing influence of digital marketing. Many marketers are increasing their ad spend on digital media because of its unparalleled ability to deliver personalized messages that are easy to measure. Cable TV players are set to face competition for advertising dollars from streaming service providers like Netflix and Disney, which are raising prices and introducing cheaper ad-supported packages now that growth of their number of subscribers has slowed.
Zacks’ Industry Rankings Indicate Bright Prospects
The Zacks Cable TV industry is housed within the broader Zacks Consumer Discretionary business. It carries a Zacks Industry Ranking of #85, which places it in the top 34% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, indicates an encouraging near-term outlook. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of industries ranked by Zacks is the result of a positive earnings outlook for the constituent companies overall. Looking at revisions to overall earnings estimates, it appears analysts are optimistic about the earnings growth potential of this group. Since September 30, 2021, the industry’s earnings estimate for 2022 has increased by 0.5%.
Before outlining a few stocks you might consider for your portfolio, let’s take a look at recent stock market performance and the industry valuation picture.
Industry lagging sector, S&P 500
The Zacks Cable TV industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry declined by 43% during this period, compared to a decline of 39.8% for the sector as a whole. The S&P 500 fell 12% over the same period.
Year-over-year price performance
Current industry assessment
Based on trailing 12-month EV/EBITDA, a multiple commonly used to value cable companies, we see the industry is currently trading at 7.35X versus the S&P 500’s 12.27X and 8 .58X of mains.
Over the past five years, the industry has traded as low as 19.25X, as low as 7.3X and at the median of 10.72X, as seen in the chart below.
EV/EBITDA ratio (TTM)
3 cable stocks at a glance
Comcast: The Philadelphia, Pennsylvania-based company is building on an expanding broadband subscriber base and strong momentum in the wireless industry, in addition to growing advertising revenue. Its strategy to provide high-speed Internet access at an affordable price plays a central role in providing connectivity and improving the customer experience. Additionally, the coronavirus-induced surge in media consumption and the surge in working-from-home and online learning bodes well for Comcast’s internet business. Its streaming service, Peacock, has grown in popularity in a short time and is a key catalyst in boosting broadband sales.
Shares of this company Zacks Rank #3 (Hold) are down 42% over the past year. The Zacks consensus estimate for Comcast’s current-year earnings rose 0.6% to $3.63 per share in 60 days. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pricing and Consensus: CMCSA
Charter Communications: This Zacks No. 3 ranked company is benefiting from growth in internet and mobile revenue and repeat customer wins. Internet revenue increased thanks to a stronger customer base, a promotional roll-off and price adjustments.
Charter continues to witness solid internet usage due to the coronavirus-induced work-from-home and e-learning routine. The company’s broadband service has gained traction with SMBs and enterprises. Additionally, an expanding mobile subscriber base is a key enabler.
Charter shares are down 49.7% over the past year. The consensus rating for 2022 earnings rose 4.5% to $31.44 per share over the past 60 days.
Pricing and Consensus: CHTR
Rogers communications: This Zacks #3 ranked company continues to benefit from adding Internet subscribers and moving Internet users to higher usage levels. The company’s investments in 5G spectrum and partnerships with leading real estate companies to support the deployment of 5G infrastructure are catalysts. Additionally, it has expanded the Rogers 5G network to 1,500 communities, which will be a major long-term growth driver. In addition, the acquisition of Shaw Communications should expand its user base.
Shares of this Canada-based company are down 13% over the past year. The consensus mark for 2022 earnings was down 3.7% at $2.89 per share in the past 60 days.
Pricing and Consensus: RCI
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Comcast Corporation (CMCSA): Free Inventory Analysis Report
Rogers Communication, Inc. (RCI): Free Inventory Analysis Report
Charter Communications, Inc. (CHTR): Free Stock Analysis Report
