The Walt Disney Company (DIS) and Comcast Corporation (CMCSA) are established players in the entertainment industry. DIS is a diversified international family entertainment and media enterprise. It operates through two segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products. Its media networks segment includes cable and broadcast television networks, television production and distribution operations, domestic television stations, and radio networks and stations. CMCSA is a media and technology company that offers video, high-speed Internet, and voice services to residential and business customers, as well as ethernet network services and cellular backhaul services to mobile network operators. It also provides entertainment, news, information, and sports content.
The entertainment industry is poised for a paradigm shift with the introduction and rapid acceptability of OTT platforms. The industry saw an unprecedented surge in demand for OTT services amid the COVID-19 pandemic due to the emergence of homebound lifestyles. Investor sentiment toward the space is evident in the iShares Evolved U.S. Media and Entertainment ETF’s (IEME) 52.6% returns over the past year. And, according to ResearchAndMarkets, the global media & entertainment market is expected to grow at a 13%-plus CAGR between 2021 – 2026. So, both DIS and CMCSA should benefit.
While DIS has gained 52.1% over the past year, CMCSA has returned 45.2%. In terms of their past nine months’ performance, DIS is a clear winner with 40.6% returns versus CMCSA’s 29.4% gains. But which of these two stocks is a better pick now? Let’s find out.
On March 18, 2021, ESPN, a unit of DIS, reached a long-term agreement with the National Football League (NFL), through 2023, that is expected to result in ABC/ESPN joining the Super Bowl coverage rotation, additional playoff action coverage and exclusive national ESPN+ matchups.
On June 7, 2021, Peacock, an OTT video streaming service owned and operated by CMCSA’s NBCUniversal subsidiary, and Samsung Electronics, announced the availability of Peacock app on Samsung Smart TVs from June 8 onwards. The Peacock app will offer movies, shows, and live news and sports programming to millions of Samsung Smart TV households nationwide.
Recent Financial Results
DIS’ total revenue decreased 13.4% from the prior-year quarter to $15.61 million for the fiscal second quarter ended April 3, 2021. Its net income came in at $901 million, which represents a 95.9% improvement year-over-year. The company’s EPS was $0.49, up 96% year-over-year.
For the first quarter, ended March 31, 2021, CMCSA’s total sales were $27.21 billion, up 2.2% from the prior-year quarter. The company’s adjusted net income increased 8.1% year-over-year to $3.53 billion. Its adjusted EPS increased 7% year-over-year to $0.76.
Past and Expected Financial Performance
DIS’ revenue has increased at an 0.8% CAGR over the past three years. Analysts expect the company’s revenue to increase 3.6% for the current year and 26.3% in the next year. Its EPS is expected to grow 16.8% for the current year and 112.3% next year. Also, its EPS is expected to grow at a 51.7% rate per annum over the next five years.
In comparison, CMCSA’s revenue increased at a 6.1% CAGR over the past three years. Its revenue is expected to increase 9.3% for the current year and 6.5% in the next year. The company’s EPS is expected to grow 12.6% for the current year and 24.8% next year. CMCSA’s EPS is expected to increase at an 18.1%rate per annum over the next five years.
CMCSA’s $104.16 billion trailing-12-month revenue is 1.8 times DIS’ $58.35 billion. Also, CMCSA is more profitable, with a 67.6% gross profit margin versus DIS’ 30.7%.
CMCSA’s4.1% and 5.6% respective ROA and ROTC compare favorably with DIS’ 0.4% and 0.5%.
In terms of forward EV/S, DIS is currently trading at 5.46x, which is 71.2% higher than CMCSA’s 3.19x. Moreover, DIS is currently trading at a 36.27x, forward EV/EBITDA, which is 235.5% higher than CMCSA’s 10.81x.
So, CMCSA is the more affordable stock.
CMCSA has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, DIS has an overall C rating, which equates with Neutral. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
DIS has a D grade for Quality. This is justified owing to its negative ROE. In comparison, CMCSA has a B grade for Quality. Its 13.5% trailing-12-month ROE is 113.2% higher than the 6.3% industry average.
CMCSA also has an B grade for Sentiment, which is in sync with favorable analyst sentiment. The company’s EPS is expected to grow 5.6% over the next year, which exceeds the 4.9% industry average EPS growth rate. In comparison, DIS has a grade of C for Sentiment, which reflects its negative growth rate.
In addition to the POWR Ratings grades we’ve just highlighted, both CMCSA and DIS are graded for Momentum, Value, Stability, and Growth. Click here to see the additional ratings for CMCSA. Also, get all DIS’s ratings here.
While CMCSA and DIS should benefit from the entertainment industry’s growth, we think CMCSA appears to be a better investment here based on its lower valuation and superior financials.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Entertainment-TV & Internet Providers industry. Click here to learn about the top-rated stocks in the Entertainment-Broadcasters industry.
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DIS shares were trading at $172.52 per share on Thursday afternoon, down $0.30 (-0.17%). Year-to-date, DIS has declined -4.78%, versus a 15.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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