In the media business, more than in most others, relevance and success go hand in hand with scale. Three giants in particular, The Walt Disney Company (NYSE:DIS), Time Warner Inc (NYSE:TWX), and News Corp (NASDAQ:NWSA) , offer very interesting investment prospects. Below, I will look into these companies in order to elucidate which is the best value for our money.
A company in different businesses
This is a well-known worldwide company that successfully operates in five business segments: Media Networks, Studio Entertainment, Theme Parks and Resorts, Consumer Products and Internet, and Direct Marketing. Trading at a P/E ratio of 21.1, almost half the industry mean of 39.5, I would recommend buying this stock, especially since plenty of reasons to believe in its future growth can be found.
Disney recently reported its second-quarter earnings for fiscal 2013 and did not let down stockholders. Diluted earnings rose to $0.83 from $0.63 in the prior-year quarter. Revenue was also up 10% year over year to $10.55 billion, while free cash flow increased 473% from $335 million to $1.57 billion. Its primary revenue source is its Media Network business, which continues to drive the top and bottom line results.
However, the Parks and Resorts segment came in just behind, with greater growth than the first, registering a 6% upsurge in revenue year over year versus the latter’s 14% growth. Studio Entertainment, Consumer Products, and Interactive segments delivered 13%, 12%, and 8% growth, respectively, year over year. This portrays an encouraging outlook, especially as these sectors delivering double-digit growth provide wider margins than the media business.
Nevertheless, the company’s focus is on its core media business. This has led to several content distribution agreements with Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), Cox Communications, and Charter Communications, which widen its platforms and expand the delivery of its content.
Although the 1.14% dividend yield may not attract investors´ attention particularly, the fact is that Disney is a great company for shareholders. It has been actively managing its cash flows. Since the start of the year, it has repurchased $1.9 billion in stock.
Several acquisitions, including Marvel Comics in 2009 (for $4 billion) and Lucasfilm, with its Star Wars franchise, in 2012, have proven highly profitable and should widen Disney’s already vast product offering that comprises ABC, ESPN, Pixar, and TouchStone Pictures among others.
Another worldwide media giant is News Corp (NASDAQ:NWSA), a company that controls Fox, The Wall Street Journal, and the New York Post, among other media. I would recommend buying the Class A stock in this case, mainly on account of the upcoming spin-off of its publishing business to be completed by the end of June. Several reasons lead me to advocate buying, or at least keeping an eye, on this company as plenty of growth catalysts and upside for investors can be found.
The split into two publicly-traded entities (one for publishing and one for media) is expected to reduce costs and therefore benefit shareholders. This provides an interesting entry point for those investors willing to take the risk, as the result is projected to produce double-digit growth for the company.
News Corp (NASDAQ:NWSA) has a strong international presence and is ahead of its competitors in expanding its base, especially in Asia and Europe. This growth in overseas markets will most likely drive growth in the upcoming years.
Last reported quarterly results portray a positive outlook for investors. Earnings were up over 12% (YoY) to $0.44 per share, mainly driven by a strong performance in Cable, Television, and Publishing operations. The company has surpassed the Zacks Consensus Estimate in the last seven quarters by an average of 12.3%. Revenue also came ahead of Zacks Consensus Estimate at $9.42 billion, up 5% from the prior year.