In this article, I evaluated two entertainment stocks, The Walt Disney Company (DIS) and AMC Networks Inc. (AMCX), to analyze the potential weekly buy. After thoroughly evaluating these stocks, I think AMCX might be a superior choice for the reasons discussed in this article.
The demand for enhanced streaming services is rising due to the popularity of high-quality videos, driving growth in the global media and entertainment content market. The media and entertainment market is estimated at $27.72 billion this year. The market is expected to expand at a CAGR of 7.8% to reach $40.36 billion by 2028.
Furthermore, the global AI in media & entertainment market is expected to grow at a CAGR of 23.5% until 2032. The increasing demand for personalized content, rapid digital transformation in the media and entertainment sector, the rise of over-the-top (OTT) platforms, and advances in AI technologies are some of the major factors propelling the market.
DIS declined 5.8% over the past nine months compared to AMCX’s 1.7% gain. The stock has declined 11.3% over the past year compared to AMCX’s 5.8% gain.
Here are the reasons why I think AMCX might perform better in the near term:
Recent Developments
On January 3, 2024, DIS revealed that DIS and ValueAct Capital Management, L.P. had entered into a confidentiality agreement that enables the company to provide information to the investment firm and consult with ValueAct on strategic matters, including through meetings with the Disney Board and management.
Conversely, On November 1, 2023, DIS announced the acquisition of Comcast Corp.’s 33% stake in Hulu, LLC, following Comcast’s exercise of its put/call right. The deal, valued at approximately $8.61 billion, aligns with DIS’ streaming objectives.
Recent Financial Results
For the fourth quarter that ended September 30, 2023, DIS’ revenues rose 5.4% year-over-year to $21.24 billion. Its total segment operating income rose 86.3% year-over-year to $2.98 billion. Moreover, its attributable net income and EPS came in at $264 million and $0.14, up 63% and 55.6% over the prior-year quarter, respectively. However, as of September 30, 2023, DIS’s total liabilities and equity stood at $205.58 billion compared to $203.63 billion as of October 1, 2022.
On the contrary, AMCX’s net revenues came in at $636.95 million during the third quarter ended September 30, 2023. Net income attributable to AMCX’s shareholders came in at $63.42 million, while net income per share attributable to AMCX’s shareholders came in at $1.44.
Past And Expected Financial Performance
Over the past three years, DIS’s revenue increased at a 10.8% CAGR. Analysts expect DIS’s revenue to increase by 4.1% in the year ending September 2024 and 1.3% in the first quarter ended December 2023. Its EPS is expected to increase 16.1% in the year ending September 2024 and 6% over the fiscal first quarter (ended December 2023).
Conversely, AMCX’s revenue has increased at a CAGR of 2.1% over the past three years. Its revenue is expected to be $2.71 million in the fiscal year ended December 2023. Its EPS is expected to be $7.37 in the year ended December 2023.
Valuation
DIS’s forward EV/EBITDA multiple of 12.32 is higher than AMCX’s 4.88. DIS’s forward EV/Sales multiple of 2.40x is higher than AMCX’s 1.12x.
Thus, AMCX is more affordable.
Profitability
DIS’s trailing-12-month gross profit margin of 33.41% is lower than AMCX’s 48.42%. In addition, DIS’s trailing-12-month asset turnover ratio of 0.43x is lower than AMCX’s 0.54x.
Thus, AMCX is more profitable.
POWR Ratings
DIS has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, AMCX has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DIS has a C grade in Quality. Its trailing-12-month EBIT margin of 10.50% is 20.7% higher than the industry average of 8.70%. However, its trailing-12-month EBITDA margin of 16.54% is 14.2% lower than the 19.26% industry average.
On the other hand, AMCX has a B grade in Quality. Its trailing-12-month EBIT margin of 18.19% is 109.1% higher than the industry average of 8.70%. Its trailing-12-month EBITDA margin of 21.77% is 13% higher than the 19.26% industry average.
Among the 11 stocks in the in the Entertainment - Media Producers industry, DIS is ranked #7, while AMCX is ranked first.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Sentiment. Get all DIS ratings here. Click here to view AMCX ratings.
The Winner
The entertainment industry is seeing steady gains as a result of rising consumer demand for personalized content and technological improvements. Industry players such as DIS and AMCX are well-positioned to benefit from these industry tailwinds.
However, AMCX’s higher profitability and lower valuation makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Media Producers industry 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.
DIS shares were trading at $93.90 per share on Wednesday morning, up $0.13 (+0.14%). Year-to-date, DIS has gained 4.00%, versus a 2.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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