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.
News Corp (NASDAQ:NWSA)’s vast library of movies and TV shows serve as a stabilizer for the company. Given the fact that the movie making business is quite volatile and unpredictable, the aforementioned products, that include “The Simpsons” among many others, should provide reassuring and steady annual cash flow.
A very attractive pick
Trading at 18.6 times trailing earnings, Time Warner Inc (NYSE:TWX) is even better valued than Disney. Dividend yield is also more attractive for investors at 1.87%. Whether it is a better investment or not still remains to be decided. However, I would certainly recommend buying this stock.
Despite posting flat revenue of $6.9 billion, first-quarter results still look encouraging as adjusted EPS grew 22% to $0.82 and so did the operating income, mainly bolstered by increased sales and operating profits in the cable network segment. In addition, shareholders have been rewarded by the repurchase of more than 25% of the firm’s outstanding shares since 2009 and about $870 million (1.3%), since the beginning of the year.
Its diversified and international product offerings provide plenty of growth opportunities for the future. It has strengthened its presence worldwide through its region-specific versions of CNN, Cartoon Network, and TNT, among others in over 180 countries. HBO is also part of Warner’s portfolio and leads in the premium TV segment. Incursions in the digital segment, like the HBO GO streaming initiative, will most likely help maintain this position.
This company does not only dominate in the multimedia sector. Among traditional media, Time, a Warner owned subsidiary company, is the largest magazine publisher in the U.S. based on advertising revenue (Publishers Information Bureau). Its movement into the digital business, bolstered by an agreement with Apple, will most certainly drive its profits in the near future.
When investing in media, there is more to look at than just the fundamentals and growth prospects. Any stockholder should be aware of the political, social, moral, and religious views defended and praised by these networks, as they play a crucial role in the creation and variations of public opinion and policy. However, in terms of investment basics, if looked through the same glass as any other company, my pick would be The Walt Disney Company (NYSE:DIS), due to its reasonable valuation and compelling growth prospects.
The article 3 Big Leaders in the Media Industry originally appeared on Fool.com and is written by Victor Selva.
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