The entertainment business provides plenty of growth opportunities for those smart and capable enough to seize them. Historically dominated by major players like Twentieth Century Fox Home Entertainment LLC, News Corp (NASDAQ:NWSA)., The Walt Disney Company (NYSE:DIS) and Time Warner Inc (NYSE:TWX)., this segment is all about being big and playing big: big budgets, big films, big screens, and big cable networks.
In this article, I will look at three large companies within this segment that operate in different parts of the chain, profiting from mutual success. The three are a movie production company, Lions Gate Entertainment Corp. (USA) (NYSE:LGF), a movie theater technology producer, IMAX Corporation (USA) (NYSE:IMAX), and a cable company, Comcast Corporation (NASDAQ:CMCSA). Offering compelling long-term prospects and plenty of mutual growth opportunities, these three firms are worth your attention.
Lions Gate Entertainment Corp. (USA) (NYSE:LGF): MOTION PICTURE GRP (OTCMKTS:MPRG) and television programming
First off is Lions Gate Entertainment Corp. (USA) (NYSE:LGF). It produces and distributes motion pictures and television programming and also has presence in other segments such as Twentieth Century Fox Home Entertainment LLC, digital distribution and new channel platforms. Although its stock has been experiencing constant upsurges and currently trades close to an all-time high with a valuation of 18.1 times its earnings, it still trades at a 14% discount compared to the industry average. Expected to deliver annual earnings-per-share growth rates around 25% over the next five years, I’d strongly recommend BUYING and holding on to this company’s stock.
This company first fell onto my radar after it reported its last quarterly results and vastly surpassed consensuses, with a revenue growth rate of 21.8% to $785.7 million which was driven by robust performance in the Twentieth Century Fox Home Entertainment LLC, international and LionsGate U.K. operations. The company outperformed its peers such as Cinemark Holdings, Inc. (NYSE:CNK) and Dreamworks Animation Skg Inc (NASDAQ:DWA) in sales, earnings and share growth. Over the years, Lions Gate Entertainment Corp. (USA) (NYSE:LGF) has proven successful in producing small and mid-budget specialty films and sharing production costs through co-production agreements. “Moreover, keeping production costs low often involves paying talent low upfront salaries and awarding financial participation in a film’s profits.” (Zacks) This has resulted in a 104% return on equity trailing twelve months and an 8.4 return on assets, both well above the industry means.
Going forward, its motion pictures –including blockbusters like the Twilight Saga and The Hunger Games- for both cinemas and TV and series production should drive growth higher while strategic acquisitions and partnerships will diversify its portfolio, increasing its market presence and returns. Moreover, its success at the Cannes Film Festival and an alliance with Internet Explorer will reward shareholders in the near term so you should get a hold of these shares before it’s too late!
IMAX Corporation (USA) (NYSE:IMAX): Dominance in large – screen format
IMAX Corporation (USA) (NYSE:IMAX) is the next company in my segment overview. The company produces entertainment products, focusing on film and digital imaging technologies including giant-screen images, 3D presentations, post-production and digital projection. For years it was the only major provider of large-screen format films. Due to its high pricing, however, it wasn’t until 2008 when IMAX Corporation (USA) (NYSE:IMAX) Digital technology (which was cheaper than its predecessors) was launched that the firm became really popular. Now the company operates in over 700 theater locations and “through a mix of sales, leases, and joint revenue-sharing agreements with traditional theater operators, IMAX Corporation (USA) (NYSE:IMAX)’s technology is now embedded in the large majority of the industry’s large film screens.” (Morningstar)
Trading around $26.5 per share, the company is close to a 3 month low and provides a good entry point for long-term investors. Although its valuation doesn’t look very attractive at the moment, earnings-per-share growth is expected above 32% per annum for the upcoming years. Consequently, I would recommend BUYING and holding on to this company’s stock as its long-term prospects look promising.