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4 Stocks to Watch From a Prospering Cable Television Industry
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The Zacks Cable Television industry players are focusing on bundled offerings and on-demand programming to counter challenges from cord-cutting as consumers shift away from traditional pay-TV options, including cable TV and satellite TV, to over-the-top streaming services with innovative content. The industry is evolving by leveraging its broadband infrastructure to meet changing consumer preferences, balancing traditional cable services with new streaming options to maintain relevance in the rapidly changing media landscape. Cable companies are benefiting from consistent demand for high-speed broadband and WiFi devices, driven by hybrid work and learning environments. Increased media consumption has been a key catalyst for industry leaders like Comcast (CMCSA - Free Report) , Charter Communications (CHTR - Free Report) , Rogers Communication (RCI - Free Report) and Liberty Global (LBTYA - Free Report) .
Industry Description
The Zacks Cable Television industry comprises companies offering integrated data, video, and voice services, including pay-TV and Internet-based streaming content. These firms provide equipment like satellite dishes, digital set-top receivers, and remote controls. Cable companies typically build or lease network backbones from telecom companies and purchase licenses to distribute programmers' content over these networks. They license content from programmers and sell advertising spots. The industry is capital-intensive, requiring significant investment in infrastructure, and is heavily regulated by the Federal Communications Commission. Industry players must balance the need for ongoing investment in technology and infrastructure with evolving consumer preferences and regulatory compliance to maintain competitiveness in the media landscape.
4 Trends Shaping the Future of the Cable Industry
Skinny Bundles, Original Content Driving Growth: Cable television’s ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. Nevertheless, consumers’ unfavorable disposition, particularly toward advertising, has hit industry participants hard. Further, the growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry players to alter their business models. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. These companies are also innovating in terms of original content to be competitive against streaming service providers.
High-Speed Internet Demand Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided cable television industry participants like Comcast and Charter. Improving Internet speed is fueling the demand for high-quality video and the trend of binge viewing. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth. Also, the work-from-home trend and online learning have boosted Internet usage, thus supporting industry participants.
Cord Cutting and Matured PayTV Industry Hurting Prospects: The cable television industry is witnessing the rapid evolution of distribution platforms as well as embracing new players and advanced technologies. Declining profits of residential video services due to rising programming costs and retransmission fees have made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it particularly tricky for traditional cable television companies to maintain a viewer base. Furthermore, the traditional pay-TV industry is maturing with widespread consolidation. Moreover, residential voice service revenues are declining due to the rising shift to wireless voice services.
Softness in Advertising Demand Impeding Business Growth: Persistent inflation and higher interest rates are having a detrimental effect on ad spending. Besides, the challenge with TV ads is that marketers have difficulty getting actionable metrics and insights such as attribution data. At this time, marketers must look for outside-the-box solutions to extract conversion data from offline media. TV has taken a secondary role in most marketing strategies due to the growing influence of digital marketing. Many marketers are increasing ad spending on digital mediums due to their unmatched ability to deliver personalized messages that are easy to measure. Cable TV players are set to face competition for ad dollars from streaming service providers like Netflix and Disney, which are raising prices and introducing cheaper ad-supported packages now that their subscriber growth has slowed.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #52, which places it in the top 21% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Jul 31, 2023, the industry’s earnings estimate for 2024 has moved up by 1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Cable Television industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 13.2% over this period against the broader sector’s increase of 45.7%. The S&P 500 has risen 27.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 6.61X compared with the S&P 500’s 20.09X and the sector’s 8.18X.
Over the past five years, the industry has traded as high as 15.39X, as low as 6.47X and at the median of 10.23X, as the chart below shows.
EV/EBITDA Ratio (TTM)
4 Cable Stocks in Focus
Comcast: The company is riding on strong momentum in the wireless business. Its strategy to provide high-speed Internet at an affordable price plays a pivotal role in providing connectivity and improving customer experience.
Comcast Business’ new 5-Year Price Lock Guarantee promotion is noteworthy. By locking in monthly Internet service charges for five years, Comcast is offering businesses a rare opportunity to stabilize a significant operational cost over an extended period. The recovery in the park and movie business bodes well for Comcast’s profitability. Its streaming service, Peacock, is a key catalyst in driving broadband sales. The company has made a significant move in the streaming market with the launch of NOW TV Latino, a new service targeting Spanish-speaking audiences. Priced at $10 per month with no contract or additional fees, the offering includes more than 25 live Spanish-language streaming channels and access to Peacock Premium. Its strong free cash flow generation ability is noteworthy.
Shares of this Zacks Rank #3 (Hold) company have declined 14.9% in the year-to-date period. The Zacks Consensus Estimate for Comcast’s 2024 earnings has moved north by a penny to $4.22 per share in 30 days’ time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CMCSA
Charter Communications: This Zacks Rank #3 company is benefiting from strong growth in residential mobile service and commercial business. The company’s expanding Internet subscriber base and strong mobile line growth boost prospects. The company launched two new value-oriented Internet-delivered streaming TV packages, Spectrum TV Stream and Spectrum Stream Latino, for Spectrum Internet customers. It has expanded its partnership with Magnite to enhance programmatic ad-buying across Spectrum Reach's extensive library of premium linear and streaming television inventory.
Charter’s broadband service continues to gain traction among small and medium businesses. The company’s initiatives to evolve its network services to improve speed and latency have been a key catalyst. Its partnership with Cisco is helping it offer enhanced cybersecurity solutions to enterprises, thereby driving the adoption of Spectrum enterprise solutions.
Charter’s shares have declined 25.2% in the year-to-date period. The consensus mark for 2024 earnings has moved north by 0.4% in the past 30 days to $32.16 per share.
Price and Consensus: CHTR
Rogers Communication: This Zacks Rank #3 company continues to benefit from mobile phone and Internet subscriber additions. The company’s investments in the 5G spectrum and partnerships with leading real estate companies to support 5G infrastructure deployment are catalysts. Rogers has expanded its 5G network to more than 2,407 communities, which is expected to be a key growth driver in the long haul.
Further, the acquisition of Shaw Communications is expected to expand its user base. Rogers will expand its market share from a predominantly eastern Canada focus into the sparsely populated regions of Western Canada on the back of Shaw’s wireline, or cable and Internet, business. Within five years, Rogers looks to invest at least $2.5 billion to enhance and expand 5G coverage in Western Canada and at least $3 billion in additional network, services and technology investments.
Shares of the company have declined 21.4% in the year-to-date period. The consensus mark for 2024 earnings has remained steady at $3.66 per share in the past 30 days.
Price and Consensus: RCI
Liberty Global: This international provider of video, broadband Internet, fixed-line telephony, mobile and other communications services is benefiting from increasing Internet speed and an expanded mobile subscriber base. Increasing demand for higher Internet speed in the U.K. has been a key catalyst. The company’s focus on offering higher-value bundles is expected to drive the top line.
Liberty Global is also benefiting from the acquisition of Sunrise Communications in Switzerland. Moreover, the company’s non-consolidated joint venture —Virgin Media O2 — is contributing to the top line. Recently, Virgin Media O2 announced an extension of its agreement with Vodafone UK to enhance mobile coverage across the country. LBTYA is set to acquire shares held by Warner Bros. Discovery in the electric car racing series Formula E. This acquisition will increase Liberty Global’s ownership in Formula E to 65%.
Shares of this Zacks Rank #3 company have declined 0.1% in the year-to-date period. The Zacks Consensus Estimate for Liberty’s 2024 loss has remained steady at 61 cents per share in 30 days’ time.
Price and Consensus: LBTYA
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4 Stocks to Watch From a Prospering Cable Television Industry
The Zacks Cable Television industry players are focusing on bundled offerings and on-demand programming to counter challenges from cord-cutting as consumers shift away from traditional pay-TV options, including cable TV and satellite TV, to over-the-top streaming services with innovative content. The industry is evolving by leveraging its broadband infrastructure to meet changing consumer preferences, balancing traditional cable services with new streaming options to maintain relevance in the rapidly changing media landscape. Cable companies are benefiting from consistent demand for high-speed broadband and WiFi devices, driven by hybrid work and learning environments. Increased media consumption has been a key catalyst for industry leaders like Comcast (CMCSA - Free Report) , Charter Communications (CHTR - Free Report) , Rogers Communication (RCI - Free Report) and Liberty Global (LBTYA - Free Report) .
Industry Description
The Zacks Cable Television industry comprises companies offering integrated data, video, and voice services, including pay-TV and Internet-based streaming content. These firms provide equipment like satellite dishes, digital set-top receivers, and remote controls. Cable companies typically build or lease network backbones from telecom companies and purchase licenses to distribute programmers' content over these networks. They license content from programmers and sell advertising spots. The industry is capital-intensive, requiring significant investment in infrastructure, and is heavily regulated by the Federal Communications Commission. Industry players must balance the need for ongoing investment in technology and infrastructure with evolving consumer preferences and regulatory compliance to maintain competitiveness in the media landscape.
4 Trends Shaping the Future of the Cable Industry
Skinny Bundles, Original Content Driving Growth: Cable television’s ability to generate ad revenues outside traditional TV platforms, such as websites and any digitally-consumed platform, provides increased scope for target-based advertising. Nevertheless, consumers’ unfavorable disposition, particularly toward advertising, has hit industry participants hard. Further, the growing consumer preference for digital and subscription services instead of linear pay-TV and rental or outright purchase has compelled industry players to alter their business models. Cable television companies are now offering a variety of alternative packages, including skinny bundles, which are delivered at lower costs than traditional offerings. These companies are also innovating in terms of original content to be competitive against streaming service providers.
High-Speed Internet Demand Key Catalyst: The growing demand for high-speed Internet, including broadband, has aided cable television industry participants like Comcast and Charter. Improving Internet speed is fueling the demand for high-quality video and the trend of binge viewing. Further, a strengthening broadband ecosystem in international markets, along with the proliferation of smart TVs, is anticipated to drive growth. Also, the work-from-home trend and online learning have boosted Internet usage, thus supporting industry participants.
Cord Cutting and Matured PayTV Industry Hurting Prospects: The cable television industry is witnessing the rapid evolution of distribution platforms as well as embracing new players and advanced technologies. Declining profits of residential video services due to rising programming costs and retransmission fees have made survival difficult for traditional companies. Additionally, the heightened need for on-demand content has led to the mushrooming of streaming service providers, making it particularly tricky for traditional cable television companies to maintain a viewer base. Furthermore, the traditional pay-TV industry is maturing with widespread consolidation. Moreover, residential voice service revenues are declining due to the rising shift to wireless voice services.
Softness in Advertising Demand Impeding Business Growth: Persistent inflation and higher interest rates are having a detrimental effect on ad spending. Besides, the challenge with TV ads is that marketers have difficulty getting actionable metrics and insights such as attribution data. At this time, marketers must look for outside-the-box solutions to extract conversion data from offline media. TV has taken a secondary role in most marketing strategies due to the growing influence of digital marketing. Many marketers are increasing ad spending on digital mediums due to their unmatched ability to deliver personalized messages that are easy to measure. Cable TV players are set to face competition for ad dollars from streaming service providers like Netflix and Disney, which are raising prices and introducing cheaper ad-supported packages now that their subscriber growth has slowed.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #52, which places it in the top 21% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Jul 31, 2023, the industry’s earnings estimate for 2024 has moved up by 1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Cable Television industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 13.2% over this period against the broader sector’s increase of 45.7%. The S&P 500 has risen 27.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing cable companies, we see that the industry is currently trading at 6.61X compared with the S&P 500’s 20.09X and the sector’s 8.18X.
Over the past five years, the industry has traded as high as 15.39X, as low as 6.47X and at the median of 10.23X, as the chart below shows.
EV/EBITDA Ratio (TTM)
4 Cable Stocks in Focus
Comcast: The company is riding on strong momentum in the wireless business. Its strategy to provide high-speed Internet at an affordable price plays a pivotal role in providing connectivity and improving customer experience.
Comcast Business’ new 5-Year Price Lock Guarantee promotion is noteworthy. By locking in monthly Internet service charges for five years, Comcast is offering businesses a rare opportunity to stabilize a significant operational cost over an extended period. The recovery in the park and movie business bodes well for Comcast’s profitability. Its streaming service, Peacock, is a key catalyst in driving broadband sales. The company has made a significant move in the streaming market with the launch of NOW TV Latino, a new service targeting Spanish-speaking audiences. Priced at $10 per month with no contract or additional fees, the offering includes more than 25 live Spanish-language streaming channels and access to Peacock Premium. Its strong free cash flow generation ability is noteworthy.
Shares of this Zacks Rank #3 (Hold) company have declined 14.9% in the year-to-date period. The Zacks Consensus Estimate for Comcast’s 2024 earnings has moved north by a penny to $4.22 per share in 30 days’ time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CMCSA
Charter Communications: This Zacks Rank #3 company is benefiting from strong growth in residential mobile service and commercial business. The company’s expanding Internet subscriber base and strong mobile line growth boost prospects. The company launched two new value-oriented Internet-delivered streaming TV packages, Spectrum TV Stream and Spectrum Stream Latino, for Spectrum Internet customers. It has expanded its partnership with Magnite to enhance programmatic ad-buying across Spectrum Reach's extensive library of premium linear and streaming television inventory.
Charter’s broadband service continues to gain traction among small and medium businesses. The company’s initiatives to evolve its network services to improve speed and latency have been a key catalyst. Its partnership with Cisco is helping it offer enhanced cybersecurity solutions to enterprises, thereby driving the adoption of Spectrum enterprise solutions.
Charter’s shares have declined 25.2% in the year-to-date period. The consensus mark for 2024 earnings has moved north by 0.4% in the past 30 days to $32.16 per share.
Price and Consensus: CHTR
Rogers Communication: This Zacks Rank #3 company continues to benefit from mobile phone and Internet subscriber additions. The company’s investments in the 5G spectrum and partnerships with leading real estate companies to support 5G infrastructure deployment are catalysts. Rogers has expanded its 5G network to more than 2,407 communities, which is expected to be a key growth driver in the long haul.
Further, the acquisition of Shaw Communications is expected to expand its user base. Rogers will expand its market share from a predominantly eastern Canada focus into the sparsely populated regions of Western Canada on the back of Shaw’s wireline, or cable and Internet, business. Within five years, Rogers looks to invest at least $2.5 billion to enhance and expand 5G coverage in Western Canada and at least $3 billion in additional network, services and technology investments.
Shares of the company have declined 21.4% in the year-to-date period. The consensus mark for 2024 earnings has remained steady at $3.66 per share in the past 30 days.
Price and Consensus: RCI
Liberty Global: This international provider of video, broadband Internet, fixed-line telephony, mobile and other communications services is benefiting from increasing Internet speed and an expanded mobile subscriber base. Increasing demand for higher Internet speed in the U.K. has been a key catalyst. The company’s focus on offering higher-value bundles is expected to drive the top line.
Liberty Global is also benefiting from the acquisition of Sunrise Communications in Switzerland. Moreover, the company’s non-consolidated joint venture —Virgin Media O2 — is contributing to the top line. Recently, Virgin Media O2 announced an extension of its agreement with Vodafone UK to enhance mobile coverage across the country. LBTYA is set to acquire shares held by Warner Bros. Discovery in the electric car racing series Formula E. This acquisition will increase Liberty Global’s ownership in Formula E to 65%.
Shares of this Zacks Rank #3 company have declined 0.1% in the year-to-date period. The Zacks Consensus Estimate for Liberty’s 2024 loss has remained steady at 61 cents per share in 30 days’ time.
Price and Consensus: LBTYA