Meta, Alphabet and 10 under-the-radar media stocks expected to soar

The media landscape is going through a difficult transition, and it isn’t only because streaming is such a tricky business.

Companies such as Walt Disney Co.
DIS,
Warner Bros. Discovery Inc.
WBD
and Paramount Global
PARA
have made heavy investments in streaming services as their traditional media businesses wither, only to find that it is harder than it looks to emulate Netflix Inc.’s
NFLX
ability to make money from streaming.

Some of the companies are also saddled by debt, in part resulting from mergers that don’t hold the same shine in the current media landscape.

Needless to say, this is the age of cost-cutting for Netflix’s streaming competitors and many others in the broader media landscape.

Below is a screen of U.S. media stocks, showing the ones that analysts favor the most over the next 12 months. But before that, we list the ones with the highest and lowest debt levels.

All the above-mentioned media companies are in the communications sector of the S&P 500
,
which also includes Alphabet Inc.
GOOGL

GOOG
and Meta Platforms Inc.
META,
as well as broadcasters, videogame developers and news providers.

But there are only 20 companies in the S&P 500 communications sector, which is tracked by the Communications Services Select Sector SPDR ETF
.

High debt

Before looking at the stock screen, you might be interested to see which of the 53 media companies are saddled with the highest levels of total debt relative to consensus estimates for earnings before interest and taxes (EBIT) for the next 12 months, among analysts polled by FactSet. This may be especially important at a time when long-term interest rates have been rising quickly. Dollar amounts are in millions.

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Dish Network Corp. Class A

DISH 1,245%

$24,556

$1,973

15%

-57%

$1,773

Madison Square Garden Sports Corp. Class A

MSGS 1,125%

$1,121

$100

-14%

-4%

$3,400

Paramount Global Class B

PARA 656%

$17,401

$2,654

-29%

-13%

$9,529

Consolidated Communications Holdings Inc.

CNSL 651%

$2,152

$331

-26%

6%

$441

TechTarget Inc.

TTGT 629%

$479

$76

16%

-36%

$788

Cinemark Holdings Inc.

CNK 616%

$3,630

$589

61%

81%

$1,908

Cogent Communications Holdings Inc.

CCOI 548%

$1,858

$339

-19%

27%

$3,388

E.W. Scripps Co. Class A

SSP 529%

$3,084

$583

80%

-42%

$552

AMC Networks Inc. Class A

AMCX 492%

$2,945

$599

26%

-29%

$357

Live Nation Entertainment Inc.

LYV 466%

$8,413

$1,805

135%

22%

$19,515

Source: FactSet

Click on the tickers for more about each company, including business profiles, financials and estimates.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The debt figures are as of the end of the companies’ most recently reported fiscal quarters. The debt service ratios are EBIT divided by total interest paid (excluding capitalized interest) for the most recently reported quarters, as calculated by FactSet. It is best to see this number above 100%. Then again, these service ratios cover only one quarter.

Looking at the most indebted company by quarter-end debt to its 12-month EBIT estimate, it would take more than 10 years of Dish Network Corp.’s
DISH
operating income to pay off its total debt, excluding interest.

Shares of Dish have lost more than half their value during 2023, and the stock got booted from the S&P 500 earlier this year. The company has seen its satellite-TV business erode while it pursues a costly wireless build-out that won’t necessarily drive success in that competitive market. Dish plans to merge with satellite-communications company EchoStar Corp.
SATS
in a move seen as an attempt to improve balance sheet flexibility.

It is fascinating to see that for six of these companies, including Paramount, debt even exceeds the market capitalizations for their stocks. Paramount lowered its dividend by nearly 80% earlier this year as it continued its push toward streaming profitability, and Chief Executive Bob Bakish recently called the company’s planned sale of Simon & Schuster “an important step in our delevering plan.”

You are probably curious about debt levels for the largest U.S. media companies. Here they are for the biggest 10 by market cap:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Comcast Corp. Class A

CMCSA 266%

$102,669

$38,539

77%

33%

$187,140

Netflix Inc.

NFLX 197%

$16,994

$8,641

192%

41%

$184,362

T-Mobile US Inc.

TMUS 378%

$116,548

$30,838

32%

-5%

$156,881

Walt Disney Co.

DIS 263%

$47,189

$17,975

88%

-4%

$152,324

Verizon Communications Inc.

VZ 370%

$177,654

$48,031

36%

-11%

$140,205

AT&T Inc.

T 378%

$165,106

$43,681

31%

-20%

$100,872

Activision Blizzard Inc.

ATVI 93%

$3,612

$3,891

2159%

21%

$72,118

Charter Communications Inc. Class A

CHTR 434%

$98,263

$22,651

89%

23%

$62,380

Source: FactSet

Among the largest 10 companies in the S&P Composite 1500 communications sector by market cap, Charter Communications Inc.
CHTR
has the highest ratio of debt to estimated EBIT, while its debt service ratio of 89% shows it was close to covering its interest payments with operating income during its most recent reported quarter. Disney also came close, with a debt service ratio of 88%.

Charter Chief Financial Officer Jessica Fischer said at an investor day late last year that “delevering would only make sense if the market valuation of our shares fully reflected the intrinsic value of the cash-flow opportunity, if debt capacity in the market were limited or if our expectations of cash-flow growth, excluding the impact of our expansion were significantly impaired.”

Meanwhile, Kevin Lansberry, Disney’s interim CFO, said during the company’s latest earnings call that it had “made significant progress deleveraging coming out of the pandemic” and that it would “approach capital allocation in a disciplined and balanced manner.”

Disney’s debt increased when it bought 21st Century Fox assets in 2019, and the company suspended its dividend in 2020 in a bid to preserve cash during the pandemic.

When Disney announced its quarterly results on Aug. 9, it unveiled a plan to raise streaming prices in October. Several analysts reacted positively to the price increase and other operational moves.

Read: The long-simmering rumor of Apple buying Disney is resurfacing as Bob Iger looks to sell assets

The largest companies in the sector, Alphabet and Meta, have relatively low debt-to-estimated EBIT and very high debt-service ratios. Netflix has debt of nearly twice the estimated EBIT, but a high debt-service ratio. For all three companies, debt levels are low relative to market cap.

Low debt

Among the 52 companies in the S&P Composite 1500 communications sector, these 10 companies had the lowest total debt, relative to estimated EBIT, as of their most recent reported fiscal quarter-ends:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

New York Times Co. Class A

NYT 0%

$0

$414

N/A

32%

$6,968

QuinStreet Inc.

QNST 18%

$5

$26

-153%

-35%

$513

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Shutterstock Inc.

SSTK 26%

$63

$241

39%

-20%

$1,502

Yelp Inc.

YELP 31%

$106

$344

78%

55%

$2,909

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Scholastic Corp.

SCHL 54%

$108

$201

319%

12%

$1,314

Electronic Arts Inc.

EA 73%

$1,951

$2,678

605%

-2%

$32,425

World Wrestling Entertainment Inc. Class A

WWE 93%

$415

$448

479%

66%

$9,455

Activision Blizzard Inc.

ATVI 93%

$3,612

$3,891

2159%

21%

$72,118

Source: FactSet

New York Times Co.
NYT
takes the prize, with no debt.

Wall Street’s favorite media companies

Starting again with the 52 companies in the sector, 46 are covered by at least five analysts polled by FactSet. Among these companies, 12 are rated “buy” or the equivalent by at least 70% of the analysts:

Company

Ticker

Share “buy” ratings

Aug. 25 price

Consensus price target

Implied 12-month upside potential

Thryv Holdings Inc.

THRY 100%

$21.11

$35.50

68%

T-Mobile US Inc.

TMUS 90%

$133.35

$174.96

31%

Nexstar Media Group Inc.

NXST 90%

$157.08

$212.56

35%

Meta Platforms Inc. Class A

META 88%

$285.50

$375.27

31%

Cars.com Inc.

CARS 86%

$18.85

$23.79

26%

Alphabet Inc. Class A

GOOGL 82%

$129.88

$150.04

16%

Iridium Communications Inc.

IRDM 80%

$47.80

$66.00

38%

News Corp. Class A

NWSA 78%

$20.74

$26.42

27%

Take-Two Interactive Software Inc.

TTWO 74%

$141.42

$155.96

10%

Live Nation Entertainment Inc.

LYV 74%

$84.79

$109.94

30%

Frontier Communications Parent Inc.

FYBR 73%

$15.24

$31.36

106%

Match Group Inc.

MTCH 70%

$43.79

$56.90

30%

Source: FactSet

News Corp.
NWSA
is the parent company of MarketWatch.

Finally, here are the debt figures for these 12 media companies favored by the analysts:

Company

Ticker

Debt/ est. EBIT

Total debt

Est. EBIT

Debt service ratio

Total return – 2023

Market cap. ($mil)

Thryv Holdings Inc.

THRY 227%

$433

$191

53%

11%

$730

T-Mobile US Inc.

TMUS 378%

$116,548

$30,838

32%

-5%

$156,881

Nexstar Media Group Inc.

NXST 358%

$7,183

$2,009

63%

-8%

$5,511

Meta Platforms Inc. Class A

META 47%

$36,965

$78,129

717%

137%

$634,547

Cars.com Inc.

CARS 223%

$451

$202

41%

37%

$1,253

Alphabet Inc. Class A

GOOGL 22%

$29,432

$133,096

711%

47%

$1,528,711

Iridium Communications Inc.

IRDM 306%

$1,481

$483

54%

-7%

$5,977

News Corp. Class A

NWSA 261%

$4,207

$1,611

109%

15%

$11,940

Take-Two Interactive Software Inc.

TTWO 272%

$3,492

$1,283

-40%

36%

$24,017

Live Nation Entertainment Inc.

LYV 466%

$8,413

$1,805

135%

22%

$19,515

Frontier Communications Parent Inc.

FYBR 453%

$9,844

$2,173

85%

-40%

$3,745

Match Group Inc.

MTCH 287%

$3,839

$1,337

540%

6%

$12,177

Source: FactSet

In case you are wondering about how the analysts feel about debt-free New York Times, it appears the analysts believe the shares are fairly priced at $42.60. Among eight analysts polled by FactSet, three rated NYT a buy, while the rest had neutral ratings. The consensus price target was $43.93. The stock trades at a forward price-to-earnings ratio of 27.7, which is high when compared with the forward P/E of 21.7 for the S&P 500
.

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Here’s what Wall Street’s most bullish analyst heading into the year thinks of the stock market now

It’s back to business on Monday, but there’s a bit of nervousness after the near coup/rebellion/cage fight in one of the world’s biggest nuclear powers over the weekend.

Questions remain over a possible power struggle in Russia, as it continues to wage war on Ukraine. But barring bigger developments, investors are returning their focus on whether aggressive central banks will spark a recession and market fallout.

Read: What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

Wall Street has been growing more bullish after entering 2023 in a fearful state, following the S&P 500’s
SPX,
-0.77%

worst year since 2008. One analyst who led bullish views headed into 2023 was Deutsche Bank’s chief U.S. equity and global strategist, Binky Chadha, who sees a 4,500 finish, and others have been playing catch up to him.

In our call of the day, Chadha spoke to MarketWatch about why he’s not budging from that bullish call and what, if anything, could derail his optimistic view.

He said the year has been playing out as the bank had forecasted — strong rallies led by a squeeze on markets due to underweight positioning, with tech in the driver’s seat — the Nasdaq
COMP,
-1.01%

is up 16% so far this year. The path higher will be more of a grind as some of that positioning has caught up, he says.

Investors underweight in equities from late last year have largely caught up with their exposure, while others stay wary, says Deutsche Bank’s Binky Chadha.


Deutsche Bank

Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

Chadha said he’d rethink his more bullish outlook on “signs of corporate risk aversion. Companies pulling back and going back into the bunker.” That is corporates becoming risk averse, cutting working capital, hoarding cash, and paring capital expenditure, he said. For now, he doesn’t see that.

The strategist also weighed in on narrow market leadership, where S&P 500 gains are led by just a handful of names. “Keep in mind that the selloff of last year was also narrow,” he said, when energy stocks soared on higher prices.

But this year the reversal has seen techs rally and now he sees indeed the gains spreading to more names. He said the bank recently removed its overweight on mega-tech stocks because earnings are rebounding, but markets have priced in a lot more than they expect.

As for where to put money now? “I wouldn’t be long financials here. The events of March have painted financials with a very broad brush. Most of the large -cap financials are really beneficiaries of what happened in March, but the market has put a risk premium on them,” said Chadha

As for cyclical consumer stocks, the risk/reward is asymmetrical because so much is priced in for the downside. “Everybody in the market has been waiting so long for the recession and some things are priced for even more than an average recession,” he said.

“And so I think you want to be long the cyclical parts of the consumer, and I think you want to be underweight defensives, because rates stay here and that’s where everybody has been hiding,” he said.

And what would make Chadha lift that 4,500 S&P 500 target? “Better prospects for the economy, better prospects for gorwth. In the event of a soft landing, and to be clear that is not our house view, but that would not be a terrible thing.” And that would eventually lead to upside for markets, he said.

The markets

Stock futures
ES00,

YM00,
+0.01%

are marginally lower, with Treasury yields
TMUBMUSD10Y,
3.691%

and oil prices
CL.1,
+0.48%

dipping, and silver
SI00,
+1.97%

making some strides. Lots of weakness across Asia, led by the Shanghai Composite
SHCOMP,
-1.48%
,
while Europe stocks
SXXP,
-0.07%

are lower after a newsy Russia weekend, and natural gas futures
NG00,
+1.17%

are higher both in the U.S. and Europe. The ruble
USDRUB,
+0.91%

is down 1.7% against the dollar
DXY,
-0.27%
,
which is a little softer overall.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Goldman Sachs became the third Wall Street bank in a week to downgrade Tesla shares
TSLA,
-3.03%

to neutral, saying the stock has had a strong runup and competition grows for the EV maker. The stock is down 2% in premarket.

PacWest shares
PACW,
+0.56%

are up 8% after the regional bank said it sold its loan portfolio to Ares Management
ARES,
-2.37%

in deal that will generates $2 billion ‘to improve liquidity.’

Lucid
LCID,
-4.54%

stock is up 7% after the EV and battery pack maker agreed a deal to provide Aston Martin with powertrain and battery system technology for luxury EVs.

IBM
IBM,
-1.33%

has confirmed a $4.6 billion all-cash deal for privately held software group Appio. IBM shares are down slightly.

The Fed’s preferred inflation gauge — the personal consumption expenditures price index — is a big economic highlight, due Friday. Durable goods and some housing market data is coming Tuesday, with appearances by Fed Chairman Jerome Powell on Wednesday and Thursday.

German business sentiment fell in June Fell in June as the country’s manufacturing outlook worsened.

Russia’s defense minister Sergei Shoigu was spotted visiting troops in Ukraine on Monday — his first public appearance since the weekend rebellion pushing for his ouster. Not heard from — President Vladimir Putin or Belarus-bound Wagner chief Yevgeny Prigozhin.

Best of the web

We asked a language model to write career advice based on caterer-turned-coup leader Yevgeny Prigozhin. Here’s what it generated.

Second-quarter corporate profits are set for their biggest drop since the start of the pandemic. But then the worst could be over.

Here’s to not traveling, which turns us into the worst version of ourselves as it convinces us we’re at our best.

Octupus farming — a symbol of what humans should not be doing

The chart

“If this is still a bear market rally it will end up being the longest bear market rally in history (which probably means it isn’t a bear market rally!),” says the Weekly S&P 500 Chartstorm blog by Callum Thomas, head of research and founder @topdowncharts, referring to the below chart:


@joosteninvestor

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

TSLA,
-3.03%
Tesla

GME,
-2.55%
GameStop

AMC,
-3.84%
AMC Entertainment

NVDA,
-1.90%
Nvidia

LCID,
-4.54%
Lucid

NIO,
-5.49%
Nio

AAPL,
-0.17%
Apple

SPCE,
-18.42%
Virgin Galactic

MULN,
-4.83%
Mullen Automotive

AMZN,
-0.63%
Amazon.com

Random reads

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Naples tells billionaires to park their superyachts somewhere else.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.



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Big bank earnings in spotlight following historic failures: ‘Every income statement line item is in flux’.

JPMorgan Chase & Co.
JPM,
-0.11%
,
Citigroup Inc.
C,
+0.20%

and Wells Fargo & Co.
WFC,
+2.74%

— along with PNC Financial Services Group Inc.
PNC,
+0.37%

and BlackRock Inc.
BLK,
+0.05%

— report earnings Friday as Wall Street’s fixation on a recession continues to run deep. And following the implosion of Silicon Valley Bank
SIVBQ,
-12.21%
,
Signature Bank
SBNY,
+3.97%

and Silvergate Bank
SI,
-2.72%
,
along with efforts to seal up cracks in First Republic Bank
FRC,
+4.39%

and Credit Suisse Group AG
CS,
+1.27%
,
Wall Street is likely to review quarterly numbers from the industry with a magnifying glass.

“Every income statement line item is in flux and the degree of confidence in our forecast is lower as the probability of a sharper slowdown increases,” Morgan Stanley analyst Betsy Graseck said in a note on Wednesday.

For more: Banks on the line for deposit flows and margin pressure as they reel from banking crisis

She said that the collapse of Silicon Valley Bank and Signature Bank last month would trigger an “accelerated bid” for customers’ money, potentially weighing on net interest margins, a profitability gauge measuring what banks make on interest from loans and what they pay out to depositors. Tighter lending standards, she said, would drive up net charge-offs — a measure of debt unlikely to be repaid — as borrowers run into more trouble obtaining or refinancing loans.

Phil Orlando, chief investment strategist at Federated Hermes, said in an interview that tighter lending standards could constrain lending volume. He also said that banks were likely to set aside more money to cover loans that go bad, as managers grow more conservative and try to gauge what exposure they have to different types of borrowers.

“To a significant degree, they have to say, what percentage of our companies are tech companies? What percentage are financial companies? Do we think that this starts to dribble into the auto industry?” he said. “Every bank is going to be different in terms of what their portfolio of business looks like.”

He also said that last month’s bank failures could spur more customers to open up multiple accounts at different banks, following bigger concerns about what would happen to the money in a bank account that exceeded the $250,000 limit covered by the FDIC. But as the recent banking disturbances trigger Lehman flashbacks, he said that the recent banking failures were the result of poor management and insufficient risk controls specific to those financial firms.

“COVID was something that affected everyone, universally, not just the banking companies but the entire economy, the entire stock market,” he said. “You go back to the global financial crisis in the ’07-’09 period, that’s something that really affected all of the financial service companies. I don’t think that’s what we’re dealing with here.”

Also read: Banking sector’s growing political might could blunt reform in wake of SVB failure, experts warn

JPMorgan
JPM,
-0.11%

Chief Executive Jamie Dimon has said that Trump-era banking deregulation didn’t cause those bank failures. But in his annual letter to shareholders last week, he also said that the current turmoil in the bank system is not over. However, he also said that the collapse or near-collapse of Silicon Valley Bank and its peers “are nothing like what occurred during the 2008 global financial crisis.”

“Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight,” Dimon said. “Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known — both to regulators and the marketplace.”

“The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep,” Dimon continued. “It is unlikely that any recent change in regulatory requirements would have made a difference in what followed.”

The Federal Reserve’s decision to raise interest rates, along with a broader pullback in digital demand following the first two years of the pandemic, stanched the flow of tech-industry funding into Silicon Valley bank and caused the value of its bond investments to fall.

Don’t miss: An earnings recession seems inevitable, but it might not last long

But the impact of those higher interest rates — an effort to slow the economy and, by extension, bring inflation down — will be felt elsewhere. First-quarter earnings are expected to decline 6.8% for S&P 500 index components overall, according to FactSet. That would be the first decline since the second quarter of 2020, when the pandemic had just begun to send the economy into a tailspin.

“In a word, earnings for the first quarter are going to be poor,” Orlando said.

This week in earnings

For the week ahead, 11 S&P 500
SPX,
+0.36%

components, and two from the Dow Jones Industrial Average
DJIA,
+0.01%
,
will report first-quarter results. Outside of the banks, health-insurance giant UnitedHealth Group
UNH,
+0.70%

reports during the week. Online fashion marketplace Rent the Runway Inc.
RENT,
+3.75%

will also report.

The call to put on your calendar

Delta Air Lines Inc.: Delta
DAL,
+0.69%

reports first-quarter results on Thursday, amid bigger questions about when, if ever, higher prices — including for airfares — might turn off travelers. The carrier last month stuck with its outlook for big first-quarter sales gains when compared with prepandemic levels. “If anyone’s looking for weakness, don’t look at Delta”, Chief Executive Ed Bastian said at a conference last month.

But rival United Airlines Holdings Inc.
UAL,
+1.50%

has told investors to prepare for a surprise loss, even though it also reported a 15% jump in international bookings in March. And after Southwest Airlines Co.’s
LUV,
+0.03%

flight-cancellation mayhem last year brought more attention to technology issues and airline understaffing, concerns have grown over whether the industry has enough air-traffic controllers, prompting a reduction in some flights.

For more: Air-traffic controller shortages could result in fewer flights this summer

But limitations within those airlines’ flight networks to handle consumer demand can push fares higher. And Morgan Stanley said that strong balance sheets, passengers’ willingness to still pay up — albeit in a concentrated industry with a handful of options — and “muscle memory” from being gutted by the pandemic, could make airlines “defensive safe-havens,” to some degree, for investors.

“It is hard to argue against the airlines soaring above the macro storm underneath them (at least in the short term),” the analysts wrote in a research note last week.

The numbers to watch

Grocery-store margins: Albertsons Cos.
ACI,
+0.53%
.
— the grocery chain whose merger deal with Kroger Inc.
KR,
+0.96%

has raised concerns about food prices and accessibility — reports results on Tuesday. Higher food prices have helped fatten grocery stores’ profits, even as consumers struggle to keep up. But Costco Wholesale Corp.
COST,
-2.24%
,
in reporting March same-store sales results, noted that “year-over-year inflation for food and sundries and fresh foods were both down from February.” The results from Albertsons could offer clues on whether shoppers might be getting a break from steep price increases.

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