Zacks Industry Outlook Warner Music, News, Lions, IMAX

June 11, 2024 by Admin Blog

For Immediate Release

Chicago, IL – June 11, 2024 – Today, Zacks Equity Research covers Warner Music Group (WMG), News Corporation (NWSA), Lionsgate Entertainment (LGF.A) and IMAX Corporation (IMAX).

Industry: Film and Television

Link: https://www.zacks.com/commentary/2285775/4-film-television-production-stocks-to-watch-on-solid-industry-trends

The Zacks Motion Picture and Television Production & Distribution industry is seeing a surge in demand for digital entertainment due to operational constraints faced by movie theaters, theme parks and cruise lines. Increased consumption of online media, music and news due to work-from-home and home-learning trends has been a boon for industry participants such as Warner Music Group, News Corp, Lionsgate Entertainment and IMAX Corporation. Companies in this sector have strategically invested in superior product offerings and prudent capital allocation. A gradual recovery in advertising spending and the reopening of production pipelines bodes even better for film and television production companies.

Industry Description

The Zacks Film, Television Production & Distribution industry includes companies involved in the production, distribution and exhibition of film and television content. Its primary activity is the production of entertainment for theaters, television networks, video-on-demand platforms, streaming services and other outlets that screen such material.

Well-known companies like Imax specialize in advanced cinema technology and immersive presentation experiences. Industry participants are involved in the production and distribution of movies for theatrical release, video market, and television programming. The financial performance of these companies is heavily dependent on the worldwide box office success of movies, new releases, and television program ratings.

3 Film and TV Production Trends to Watch

Over-the-top services on the rise: Content creators are increasingly capitalizing on the popularity of their franchises by distributing them through over-the-top (OTT) streaming services to offer exclusive content and a differentiated viewing experience. However, streaming companies themselves are also producing more original, award-winning programming to reduce licensing costs and reliance on third-party providers, potentially undermining traditional content distribution strategies.

Binge watching drives consumption: Phenomena such as binge watching, widespread internet adoption, and advancements in mobile, video, and wireless technologies have led consumers to consume content more frequently on small screens. To adapt to these new viewing patterns, industry players are pivoting to digital content delivery.

The story continues

The rise of digital capabilities has made consumer data more accessible, allowing production companies to leverage AI tools to better understand audience preferences and create content that resonates. But stiff competition from streamers is driving up spending on content and marketing, hurting profitability.

Technological advancements are boosting the outlook: Exhibitors are adopting efficient and cost-effective laser projection systems to improve image quality and the overall cinematic experience. Technologies such as motion seats, immersive audio, interactive cinema, AR and VR are expected to further enhance the viewing experience. Conversely, the growth of alternative distribution channels such as home video, pay-per-view, streaming, VOD, internet and broadcast TV poses challenges for traditional exhibitors.

The Zacks Industry Rank signals a bright outlook.

The Zacks Film & Television Production & Distribution industry belongs to the broader Zacks Consumer Discretionary sector, which is ranked #66 in the Zacks Industry Rank, putting it in the top 27% of all 246 Zacks industries.

The group's Zacks Industry Rank, which is the average of the Zacks Rank of all its member stocks, indicates positive near-term outlooks. Our research shows that the top 50% of Zacks Rank industries outperform the bottom 50% by more than 2 to 1.

The favorable earnings outlook across its constituent companies has placed this industry in the top 50% of the Zacks Rank industries. Looking at the overall earnings estimate revisions, analysts seem to be optimistic about this group's earnings growth potential. Since June 30, 2023, current fiscal year estimates have risen 8.7%.

Before we dive into some of the best stocks to add to your portfolio, let's take a look at the industry's recent stock market performance and valuation situation.

Industry outperforms S&P

The Zacks Film & Television Production & Distribution industry has outperformed the Zacks S&P 500 and its sector over the past year.

Shares in the industry as a whole have risen 36.2%, compared to the S&P 500's gain of 23.2% and the Zacks Consumer Discretionary sector's gain of 4.2% during the same period.

Current Industry Assessment

Based on the trailing-12-month price-to-sales (P/S) multiple commonly used to value film and television production and distribution stocks, the industry is currently trading at 2.05x, compared with 4.1x for the S&P 500 and 1.87x for the sector.

Over the past five years, stocks in this industry have traded at a high of 2.49x and a low of 0.92x, with a median of 1.62x.

4 Movie and TV Stocks to Watch Now

Lionsgate Holdings: This Zacks Rank #2 (Buy) company is benefiting from strength in its Motion Picture and Media Networks divisions. Strong content viewership across all platforms, combined with growing subscriber numbers, are driving STARPLAY Domestic revenue. Growth in domestic OTT and global subscriber numbers is expected to drive revenue growth in the near term. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.

Lionsgate boasts a strong content pipeline on the Starz platform and is growing viewership and subscribers for its OTT services. Management is planning prudent content spending and is focused on profitability rather than chasing subscribers, and will likely explore bundling and packaging opportunities going forward.

Lionsgate has acquired global entertainment platform eOne from Hasbro for $375 million in cash, adding 6,500 movies and TV shows to its library, a deal expected to bolster the company's portfolio of brands and franchises and strengthen its foothold in Canada and the UK.

Lionsgate shares have fallen 28.9% since the beginning of the year. The Zacks Consensus Estimate for fiscal 2025 earnings has remained stable at 93 cents per share over the past 30 days.

Warner Music Group: This Zacks Rank #3 (Hold) company is thriving on continued growth in recorded music licensing and music publishing sync revenues, including revenues from emerging streaming platforms. Additionally, continued investment in international markets is expected to boost sales in the near term. Warner Music Group has moved away from relying solely on celebrity influence and is strategically targeting different elements of the value chain.

The company has invested in media platforms such as HipHopDX, IMGN and Uproxx, which have great potential to expand WMG's reach to music lovers around the world.WMG is benefiting from its expanding partnership with TikTok. The multi-year agreement licenses TikTok, TikTok Music, CapCut and TikTok's Commercial Music Library to Warner Recorded Music and Warner Chappell Music's repertoire.

Warner Music India has expanded its partnership with Global Music Junction (GMJ), the music and entertainment subsidiary of JetSynthesis, a move that will position Warner Music India as a major player in the central Indian music market.

Warner Music Group shares have fallen 17.5% since the beginning of the year. The Zacks Consensus Estimate for the company's fiscal 2024 earnings has remained stable at 99 cents per share over the past 30 days.

IMAX: Strong upcoming releases are expected to drive local-language box office receipts in markets such as China, Japan, India and South Korea, boosting IMAX's revenues for the remainder of 2024. Strengthening partnerships with major multiplex chains in regions such as France, the Philippines, Turkey and India will be a big plus. A flurry of international deals will help this Zacks Rank #3 company bring its premium visual and audio technologies to more global audiences and remain relevant amid growing competition from streaming content.

A recovery in theater installations and rising IMAX maintenance revenue are major positives. Additionally, the company's stable cash balance and flexible business model put it in a good position to expand and gain market share.

The Zacks Consensus Estimate for IMAX's earnings in 2024 has fallen 1 cent over the past 30 days to 90 cents per share. IMAX shares have risen 0.7% since the beginning of the year.

News Corporation: This Zacks Rank #3 company is benefiting from prudent strategic initiatives such as the continued digital transformation of its business and investments in its digital real estate services, Dow Jones, and book publishing divisions. News Corporation has diversified its revenue streams through strategic acquisitions and operational enhancements. We are optimistic about the acquisition of the OPIS and Base Chemical businesses, which will likely strengthen Dow Jones' information services offerings.

News Corp is well positioned to capitalize on opportunities arising from technology sharing across geographies and businesses, and from offering enhanced content bundles to consumers and advertising partners.Strong momentum in the Digital Real Estate Services division, driven by increased Australian residential revenues at REA Group, is expected to drive revenue growth in the coming quarters.

News Corp. shares have risen 10.8% since the beginning of the year. The Zacks Consensus Estimate for the company's fiscal 2024 earnings has fallen 5.6% over the past 30 days to 67 cents per share.

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