3 Stocks to Watch From a Challenging Cable Television Industry

Globe and Mail

a day ago

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 and 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, Charter Communications CHTR and Naspers NPSNY.
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 Dull Prospects
The Zacks Cable Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #199, which places it in the bottom 19% 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 outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group's earnings growth potential. Since June 30, 2024, the industry's earnings estimate for 2025 has moved south by 4%.
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 returned 8.9% over this period compared with the broader sector's growth of 19.8%. The S&P 500 has risen 11.2% 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 6.76X compared with the S&P 500's 17.07X and the sector's 10.84X.
Over the past five years, the industry has traded as high as 16.19X, as low as 6.26X and at the median of 8X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Cable Stocks to Watch
Comcast: The company demonstrates financial resilience with 2% EBITDA growth and robust $5.4 billion free cash flow generation, while wireless momentum accelerated to the strongest quarter in two years. However, broadband operations face headwinds with 199,000 customer losses amid intensifying competition from fiber and fixed wireless providers. Management acknowledges execution challenges in their core connectivity business but has initiated strategic responses, including simplified pricing structures, five-year price guarantees, and aggressive wireless expansion targeting their substantial 87% untapped broadband customer base. The upcoming Epic Universe theme park opening and improving Peacock economics provide growth catalysts, though near-term EBITDA pressure is expected from necessary investments. Comcast's diversified portfolio and strong balance sheet offer defensive qualities while management works to regain competitive momentum in its largest business segment.
Shares of this Zacks Rank #3 (Hold) company have lost 6% year to date. The Zacks Consensus Estimate for Comcast's 2025 earnings has moved north by 1.2% to $4.35 per share in 60 days. 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 presents a compelling watch story for 2025 following its transformative $34.5 billion acquisition of Cox Communications announced in May. The merger will create an enhanced industry leader serving more than 69 million passings while generating anticipated annual cost synergies of $500 million within three years. Charter Communications' Q1 2025 results demonstrate operational resilience with 4.8% adjusted EBITDA growth and robust free cash flow expansion to $1.6 billion, despite modest Internet customer declines offset by strong mobile line additions. The company's ongoing network evolution initiatives and rural expansion efforts position it strategically for long-term growth. However, investors should monitor integration execution risks, regulatory approval processes, and intensifying competition in broadband that could impact customer acquisition and pricing power throughout the combination period.
Charter's shares have gained 15.8% year to date. The consensus mark for 2025 earnings has moved north by 5% in the past 60 days to $39.54 per share.
Price and Consensus: CHTR
Naspers: This Zacks Rank #3 company is worth a watch for 2025 following a significant operational transformation and delivering impressive results with ecommerce revenue growing 24% to $3.3 billion and adjusted EBIT increasing fivefold to $169 million in the first half. The company's AI-first strategy is showing tangible benefits, including 20% improvements in customer acquisition costs and enhanced fraud detection across its ecosystem. With $10 billion available for disciplined investment and strong free cash flow generation of $911 million, Naspers is well-positioned for strategic opportunities. The focus on value crystallization through Indian IPOs, following Swiggy's successful $11.3 billion listing, offers potential near-term catalysts. However, investors should monitor the execution of the $6.2 billion revenue and $400 million profitability guidance amid evolving market conditions.
Shares of the company have surged 40.3% year to date. The consensus mark for fiscal 2025 earnings has remained steady at $4.88 per share in the past 30 days.
Price and Consensus: NPSNY
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Comcast Corporation (CMCSA): Free Stock Analysis Report
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