Zacks’ cable television industry primarily consists of companies that provide integrated data, video and voice services. Industry participants like Comcast (CMCSA) offer pay television services, including streaming content over the Internet. Some companies like DISH Corporation (DISH) provide equipment such as satellite dishes, digital set-top boxes and remote controls.
Typically, cable companies build their own backbone network or lease physical access to the backbone network from telecommunications companies. They also purchase licenses to provide subscribers with access to cable TV channels owned by programmers and distributed over the backbone network. Cable companies also sell commercials on their channels.
Industry requires high investment spending on infrastructure to improve services. Additionally, the industry is heavily regulated by the Federal Communications Commission (FCC).
Here are the four major themes of the industry:
The growing demand for high speed internet, including broadband, has benefited cable television industry participants like Comcast and Charter Communications (CHTR). Improved internet speed is driving the demand for high quality videos and the tendency for excessive viewing. In addition, improving 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 e-learning due to coronavirus-induced quarantines and lockdowns have increased internet usage, which benefits industry participants.
The cable TV industry is witnessing a rapid evolution of distribution platforms as well as the adoption of new players and advanced technologies. The declining profitability of residential video services due to increased programming costs and retransmission fees has made it difficult for traditional businesses to survive. Additionally, the growing need for on-demand content has led to the proliferation of streaming service providers like Netflix, Hulu, HBO, and Amazon Prime. This has made it particularly difficult for traditional cable TV companies to maintain a viewer base. In addition, the traditional pay television industry is maturing with widespread consolidation. In addition, residential voice service revenues are declining due to the growing shift towards wireless voice services.
The growing consumer preference for digital and subscription services instead of linear pay TV and outright rental or buy has forced industry players to change their business models. In addition, the unfavorable attitude of consumers, especially towards advertising, has hit industry players hard. Cable TV companies now offer a variety of alternative packages, including skinny packages, which come at lower costs than traditional offerings. They are also innovating in terms of original content to remain competitive with streaming service providers.
Cable TV’s ability to generate ad revenue outside of traditional TV platforms such as websites and all digitally consumed platforms provides greater reach for targeted advertising. However, the weakness of the automobile, which is a major advertising category, is a concern for the industry. Additionally, the cancellation of major sporting events like the Tokyo Olympics due to the coronavirus pandemic is expected to hurt ad sales in the short term. In addition, the industry faces significant regulatory hurdles related to mergers and acquisitions.
Zacks’ Industry Rankings Shows Bright Prospects
Zacks ‘cable TV industry is part of Zacks’ larger consumer discretionary industry. It carries a Zacks Industry Rank # 24, which places it in the top 9% 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 strong near-term prospects. 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.
Before we feature a few stocks that you might want to consider for your portfolio, let’s take a look at the recent stock market performance and industry valuation.
Industry Outperforms Sector, S&P 500
Zacks ‘cable TV industry has outperformed Zacks’ broader consumer discretionary sector as well as the S&P 500 composite over the past year.
The industry declined 10.5% during this period, compared to the 19.8% drop in the industry as a whole. The S&P 500 also fell 12.5%.
One-year price performance
Current industry assessment
Based on 12-month EV / EBITDA, a multiple commonly used to value cable companies, we see that the industry is currently trading at 8.55X versus the S&P 500’s 9.16X and the industry’s 8.91X. .
Over the past five years, the industry has traded up to 19.25X, up to 8.27X, and the median of 10.47X, as shown in the chart below.
EV / EBITDA ratio (TTM)
Actions to watch
Cable companies are trying to adapt quickly to the changing industry landscape. Focusing on providing bundles and on-demand programming content that respond to changing consumer behavior bodes well for industry participants.
Currently, none of Zacks’ cable TV industry stocks have a Zacks No.1 rank (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.
Here we present two stocks that have a Zacks Rank # 2 (Buy) and are well positioned to grow in the short term.
Cable A (CABO): This Phoenix, AZ-based broadband communications provider has climbed 51.5% in the past year. Zacks’ consensus estimate for that company’s 2020 earnings rose 0.6% to $ 41.68 in the past 30 days.
Price and consensus: CABO
DISH Network: This Englewood, CO-based pay-TV service provider has fallen 28.5% in the past year. This company’s consensus estimate for 2020 earnings has risen 8.7% to $ 2.25 per share in the past 30 days.
Price and consensus: DISH
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DISH Network Corporation (DISH): Free Stock Analysis Report
Comcast Corporation (CMCSA): Free Stock Analysis Report
Charter Communications, Inc. (CHTR): Free Stock Analysis Report
Cable One, Inc. (CABO): Free Stock Analysis Report
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