Comcast Corporation (CMCSA) and ViacomCBS Inc. (VIAC) are two prominent players in the entertainment industry. CMCSA, which is headquartered in Philadelphia, Pa., operates as a media and technology company worldwide, operating through Media; Studios; Theme Parks; and NBCUniversal segments. The company offers video streaming, television programming, high-speed Internet, cable television, and communication services. In comparison, New York City-based VIAC is a global media and entertainment company that creates content for audiences worldwide. The company operates through TV Entertainment; Cable Networks; and Filmed Entertainment segments. It runs television and radio stations, produces, and syndicates television programs, broadcasting, book publishing, online content, and outdoor advertising.

Consumers’ growing interest in over-the-top (OTT) platforms has incentivized entertainment companies to create captivating and premium content at various price points. Efforts to restrict content piracy and improve user data privacy should bode well for the entertainment industry. The global entertainment and media market is expected to grow at an 8.9% CAGR to $5.10 billion by 2030. So, both CMCSA and VIAC should benefit.

But while CMCSA’s shares declined 2% in price year-to-date, VIAC has surged 10.7%. VIAC is also a clear winner with 1.1% gains versus CMCSA’s negative returns over the past month. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On Feb. 2, 2022, CMCSA announced a new joint venture with VIAC to launch SkyShowtime, their new streaming service that has received full regulatory approval and plans to be launched in more than 20 European markets, encompassing 90 million homes, starting later this year. By featuring more than 10,000 hours of content across all genres and audience categories, SkyShowtime should grow its customer base in the coming months.

On Jan. 21, 2022, VIAC and Nexstar Media Group, Inc. (NXST), a popular local television and media company, announced that its Nexstar Media Inc. subsidiary and its operating partners had reached comprehensive multi-year agreements to renew VIAC’s existing CBS Television Network affiliations in 39 markets across the country. The new agreements recognize the value of the network's news, sports, and entertainment programming and reflect the importance of its stations to CBS and the viewers.

Recent Financial Results

CMCSA’s revenue for its fiscal 2021 fourth quarter, ended Dec. 31, 2021, increased 7.3% year-over-year to $25.52 billion. The company’s operating income came in at $4.82 billion, representing a 23.1% year-over-year improvement. Its adjusted net income was $3.53 billion for the quarter, representing a 35% rise from the year-ago period. And CMCSA’s adjusted EPS came in at $0.77, up 37.5% from the prior-year period. The company had $8.71 billion in cash and equivalents as of Dec. 31, 2021.

For its fiscal 2021 third quarter, ended Sept. 30, 2021, VIAC’s revenues increased 13.2% year-over-year to $6.61 billion. The company’s operating income came in at $879 million for the quarter, down 2.7% from the prior-year period. Its non-GAAP operating income was $1.02 billion, indicating a 3% decline from the year-ago period. VIAC’s non-GAAP net earnings were $510 million, representing a 1.2% year-over-year decline, and its non-GAAP EPS decreased 8.4% year-over-year to $0.76. The company had $4.82 billion in cash and equivalents as of Sept. 30, 2021.

Past and Expected Financial Performance

CMCSA’s levered free cash flow and EPS have increased at CAGRs of 6.3% and 6.4%, respectively, over the past three years. The company’s revenue has grown at 7.2% CAGR over the past three years.

Analysts expect CMCSA’s EPS to rise 9.6% year-over-year in its fiscal year 2022, ended Dec. 31, 2022, and 12.1% in its fiscal 2023. Its revenue is expected to grow 5.4% year-over-year in fiscal 2022 and 1.9% in fiscal 2023. The company’s EPS is expected to increase at a 14.3% rate per annum over the next five years.

In comparison, VIAC’s levered free cash flow and EPS have grown at CAGRs of 89.1% and 9.4%, respectively, over the past three years. The company’s revenue has grown at 24% CAGR over the past three years.

VIAC’s EPS is expected to decline 12.9% year-over-year in fiscal 2021, ending Dec. 31, 2021, and 2.2% in its fiscal year 2022. Its revenue is expected to grow 11% year-over-year in fiscal 2021 and 4.3% in fiscal 2022. Analysts expect the company’s EPS to decrease at a 6.5% rate per annum over the next five years.

Valuation

In terms of forward EV/Sales, CMCSA is currently trading at 2.65x, which is 102.3% higher than VIAC’s 1.31x. And in terms of forward EV/EBITDA, CMCSA’s 8.67x compares with VIAC’s 7.91x.

Profitability

CMCSA’s trailing-12-month revenue is almost 4.2 times VIAC’s. CMCSA is also more profitable, with a 30% EBITDA margin versus VIAC’s 18.1%.

Furthermore, CMCSA’s 67% and 12.2% respective gross profit and net income margins compare favorably with VIAC’s 39.9% and 12%, respectively.

POWR Ratings

While CMCSA has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, VIAC has an overall C grade, which equates to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

CMCSA has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. CMCSA’s 17.9% trailing-12-month EBIT margin is 66% higher than the 10.8% industry average. In contrast, VIAC has a C grade for Quality.

CMCSA has a B grade for Stability, which is consistent with its lower volatility compared to the broader market. CMCSA has a 0.92 beta. VIAC’s C grade for Stability is in sync with its higher volatility. VIAC has a 1.48 beta value.

Of the nine stocks in the Entertainment - TV & Internet Providers industry, CMCSA is ranked #1.

VIAC is ranked #11 of 18 stocks in the Entertainment - Media Producers industry.

Beyond what we have stated above, our POWR Ratings system has also rated CMCSA and VIAC for Growth, Sentiment, Momentum, and Stability. Get all CMCSA ratings here. Also, click here to see the additional POWR Ratings for VIAC.

The Winner

Rising demand for new content should drive CMCSA’s and VIAC’s user bases and profitability. However, its higher profitability we think makes CMCSA a better buy here.

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 access the top-rated stocks in the Entertainment - TV & Internet Providers industry, and here for those in the Entertainment - Media Producers industry.

CMCSA shares were trading at $49.20 per share on Monday afternoon, down $0.13 (-0.26%). Year-to-date, CMCSA has declined -1.76%, versus a -5.72% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

More...