It's been a mixed year so far for the broader markets, with violent crests and troughs for the media and entertainment sector.
The year-to-date numbers among the sector's leaders tell the story: Walt Disney Co (DIS - Get Report) is up 23%,Twenty-First Century Fox Inc. (FOXA - Get Report) Class A shares are down 21%, and Time-Warner Inc. (TWX - Get Report) has taken a 18% dip.
How does the sector look as we head into 2016? Will the strong stocks continue their momentum and will the weaker players bounce back? Let's take a look at the year ahead for these three leading media and entertainment companies.
DIS data by YCharts
1. Walt Disney
Walt Disney is a diversified entertainment company. However, for most of its investors the success of its big-ticket blockbuster Star Wars: The Force Awakens is a key indicator for future potential. The film opens on December 18, an event that also marks the beginning of a cycle of pictures revitalizing the franchisee -- clearly the performance of these films will hugely impact Disney's fortunes in coming quarters.
The company's fourth-quarter report displayed a healthy profit margin, but revenue targets were missed by a hair. For 2016, analysts predict a growth of 9.7%, with the rate remaining the same for 2017 as well. These growth rates are lower than the company's five-year trajectory of 20% per annum upward movement.
Over the past five years, the company repurchased about $25 billion in stocks, at an average price of roughly $58 per share. Disney will keep moving on this path, and intends to expand its repurchase program hitting around $6 billion-to-$8 billion across 2016.
Disney now offers a moderate and steady dividend yield of 1.6%, making it among a group of assets and strategiessuitable for retirement investors. Trading at a forward earnings multiple of about 14 times, Disney epitomizes corporate transformation and the willingness to embrace new trends and technologies.
FOXA data by YCharts
2. Twenty-First Century Fox
After a lackluster 2015, Twenty-First Century Fox Inc. Class A shares are ready for a return to growth.
Trading at a strong 13.1 times forward earnings, analysts suggest an acceleration is in the works -- the company will strive to push earnings-per-share (EPS) growth from less than 3% in the year ended June 2016 to a superb 27% by 2017.
Most analysts believe Fox will surge ahead over the next five years with an estimated per annum EPS growth of 16%, a marked improvement from the less than 9% per annum scenario. At the moment, Fox continues to anticipate a total company segment EBITDA percentage growth rate for 2016 in the mid-single digit range, above the $6.49 billion reported for 2015.
Senior management at Fox plan expansion in core cable franchises, promising forward movement in the TV broadcast segment.
However, the company's motion picture segment may under-perform on a short-term scale, driven by the fate of individual products. Fiscal 2016 will have a number of popular shows coming back as well as brand new material: Ryan Murphy's American Crime Story, The People versus OJ Simpson, and many more. The money-spinning media mammoth also is the franchise extension for Ice Age, slated to hit theaters in the summer of 2016.
TWX data by YCharts
3. Time Warner
Trading at 13 times forward earnings, Time-Warner Inc. has been out of favor all through 2015. But things are looking up now; 2015 should end with 12.3% growth in EPS and 2016 should witness a slightly faster 14.2% upswing. Several reports suggest Time Warner could pick up a stake in Hulu, currently owned by Disney, NBC Universal and Fox. In 2016, programming will remain the most significant area of investment for the company.
Looking to the fourth quarter, the company estimates a net negative impact of approximately 300 basis points on total subscription revenue growth. This comes as a result of the combination of continued FX headwinds and the benefit from the comparisons to last year's carriage dispute with Dish Network.
That said, Warner remains on track for a boost in domestic subscription revenue growth, moving into the low teens in 2016 and growing at a similar rate in 2017.
At nearly a 2% dividend yield, this is a stock that shows promise and belongs in any retirement investment strategy, but investors must be ready to stomach some price volatility along the way.
By Devesh Kumar
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