Here are five broadcasting-related stocks that offer capital gains potential over the next few years. We rate these five stocks as ‘buys’ but we’ve downgraded a blue chip television broadcasting stock to ‘hold’ because there are concerns the company is paying out too much of its cash in dividends rather than reinvesting it in the business.
Since our last update on broadcasting-related stocks in August, 2017, the 10 stocks we follow in our regular ‘Back Page’ feature have declined 2.0 per cent. The S&P/TSX Composite Index, meanwhile, has risen 7.1 per cent.
We expect broadcasting stocks will continue to face headwinds in the near term due to weak advertising markets. Then too, the industry faces uncertainty in the form of TV channel unbundling.
For these reasons, as well as concerns about its dividend, we’ve moved Corus (TSX—CJR.B) to a ‘hold’.
That leaves five of our broadcasting-related stocks on ‘buy’. Despite difficult industry conditions, we like our ‘buys’ for their attractive valuations.
Cogeco (TSX—CGO) expects to earn higher revenue and adjusted EBITDA in 2018, thanks to strategic investments in its communications segment. Both Cogeco and Cogeco Communications (TSX—CCA), therefore, are on ‘buy’, as is Evertz Technologies (TSX—ET), Newfoundland Capital (TSX—NCC.A) and TVA Group (TVA.B).
Corus may entertain you, but . . .
Corus Entertainment has undergone considerable transformation in recent years. In February 2016, this blue chip stock discontinued its Pay TV business, negatively impacting fiscal revenues. Two months later, Corus acquired all of Shaw Media Inc. from Shaw Communications Inc. for $2.7 billion, more than doubling its size.
This past October, Corus reached an agreement to sell its French-language specialty channels Historia and Séries+ to Bell Media for $200 million (pending CRTC and Competition Bureau approval), just four years after Bell sold its 50-per-cent stake in those channels to Corus as part of its Astral Media acquisition. Finally, Corus has announced a multi-year licensing agreement with Walt Disney Studios for broadcast rights to its Star Wars franchise.
Corus is a Canadian media leader comprised of 39 radio and 55 TV stations.
But recent financial performance has been disappointing. For the first quarter ended Nov. 30, 2017, Corus reported earnings per share of $0.38 (adjusted), compared with $0.41 in the same period of 2016. Street estimates had called for the company to earn $0.43 in the latest period.
Corus made gains in local radio advertising and its Nelvana content business. Plus, the company enjoyed better-than-expected subscriber revenues. But all this was offset by weak television advertising market conditions.
Consequently, consolidated revenues declined two per cent to $457.4 million. And consolidated segment profit was down seven per cent to $177.9 million.
The market reacted negatively to these results, knocking about 15 per cent off Corus’ share price. There are concerns the company is paying out too much of its cash in dividends rather than reinvesting it in the business. And judging by the stock’s high dividend yield of 12.2 per cent, investors seem to be saying that a dividend cut may be in store. We, therefore, now rate Corus a hold.
This is an edited version of an article that was originally published for subscribers in the January 19, 2018, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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