AMC Networks Inc. (AMCX) and Discovery, Inc. (DISCA) are two well-known media and entertainment companies that operate in the United States and internationally. AMCX operates in two segments: National Networks, and International and Other. It also provides subscription streaming and talent management services. DISCA operates in U.S. Networks and International Networks segments, and provides content through various distribution platforms, broadcast television and digital distribution arrangements.
Coronavirus shelter-in-place mandates and self-isolation measures have increased media consumption significantly. It has resulted in an increased use of the streaming services of popular media companies such as AMCX and DISCA. With the addition of new premium offerings, these companies are expected to grow their subscription bases substantially and maintain strong financial positions in the long run.
While AMCX has gained 33.7% over the past year, DISCA has returned 56.3%. In terms of the past three-month’s performance, DISCA is the clear winner with 93.3% gains versus AMCX’s 72.1% advance. But which of these stocks is a better pick now? Let’s find out.
In January, AMCX announced its plans to redeem $400 million of outstanding senior notes due 2022 and $600 million of an outstanding $1 billion of senior Notes due 2024.
Also that month, the company appointed Christina Spade as Executive Vice President, Chief Financial Officer. Her outstanding leadership skills and knowledge of the media business should make her a strong addition to AMCX’s management team as the company advances its streaming business while continuing to create world-class content.
On January 4, DISCA launched discovery+ in the United States and announced major new distribution agreements that will make the streaming service one of the most widely distributed services at launch. The company has also signed a new long-term, multi-platform agreement with Vodafone to make discovery+ available to existing Vodafone TV and mobile customers in 12 European markets. This should help DISCA to grow its user base significantly in the upcoming months.
Recent Financial Results
In the third quarter, ended September 30, 2020, AMCX’s international and other segment’s revenues increased 9% year-over-year to $199.29 million. Its adjusted operating income for the segment rose 107% from its year-ago value to $27.88 million. The company reported a free cash flow of $203 million, and cash provided by operating activities of $219 million over this period.
DISCA’s total revenue has decreased 4% year-over-year to $2.56 billion in the third quarter ended September 30, 2020. The company’s total adjusted OIBDA decreased 15% from the prior-year quarter to $954 million, while its free cash flow declined 11% year-over-year to $787 million. Its adjusted EPS declined 7% from the year-ago value to $0.81 over this period.
AMCX has an edge over DISCA here.
Past and Expected Financial Performance
AMCX’s total assets have grown at a CAGR of 3.3% over the past three years. The CAGR of the company’s levered free cash flow has been 12.2% over the same period.
Analysts expect AMCX’s revenue to increase 3.8% in fiscal 2021. The company’s EPS is expected to grow 32.7% in the current year.
In comparison, DISCA’s revenue has grown at a CAGR of 13.1% over the past three years. The CAGR of the company’s levered free cash flow has been 20.2% over the same period.
Analysts expect DISCA’s revenue to increase 9% in fiscal 2021. The company’s EPS is expected to grow slightly in the current year.
DISCA’s trailing-12-month revenue is more than three times AMCX’s. Moreover, DISCA is more profitable, with a gross profit margin of 65.3% versus AMCX’s 53.1%.
However, AMCX’s ROE and ROA of 15.6% and 8.3%, respectively, compare favorably with DISCA’s 13.1% and 5.6%.
In terms of trailing-12-month price/sales, DISCA is currently trading at 2.74x, which is 188.4% higher than AMCX, which is currently trading at 0.95x. Also, its trailing-12-month ev/sales of 4.23x is 171.2% higher than AMCX’s 1.56x.
So, AMCX is the more affordable stock.
AMCX has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. However, DISCA has an overall rating of C, which represents a neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
AMCX has a Quality Grade of A, which is consistent with its higher-than-industry EBIT margin. In comparison, DISCA has a Quality Grade of B.
Both AMCX and DISCA have a C grade for Momentum, which is consistent with their moderate price returns over the past year.
In terms of Value Grade, AMCX has a B, given its lower-than-industry p/e ratio. DISCA’s Value Grade of C is reflective of its higher-than-industry p/s ratio.
Of 18 stocks in the Entertainment – Media Producers industry, AMCX is ranked #4 while DISCA is ranked #9.
Beyond what I’ve stated above, our POWR Ratings system also rates both AMCX and DISCA for Growth, Stability, and Sentiment. Get all AMCX’s ratings here. Also, click here to see the additional POWR Ratings for DISCA.
he POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
While both AMCX and DISCA are good long-term investments considering their market dominance and continued expansion in the media streaming platform, AMCX appears to be a better buy based on the factors discussed here.
Even though DISCA remains one of the popular choices due to its appealing content and brand name, we think its premium valuation and weaker financials make it a riskier investment option compared to AMCX. Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy.
If you’re looking for better stocks in the Entertainment – Media Producers industry, click here.
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AMCX shares were trading at $50.65 per share on Friday afternoon, up $0.17 (+0.34%). Year-to-date, AMCX has gained 41.60%, versus a 4.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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