Will 2013 Box Office Receipts Propel Entertainment Stocks?
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2012 proved to be a remarkable year at the box office with record setters and major smash hits, which contributed in driving shares of entertainment stocks to outperform the S&P 500. Several highly anticipated films, including: sequels, offshoots & reboots, are slated for release this year. As a result, expect 2013 to see robust ticket sales, but will this propel select entertainment stocks in providing solid returns for investors? The following companies have some of the biggest releases of the year:
Walt Disney (NYSE: DIS) reaped tremendous box office returns in 2012, led by Marvel's The Avengers. Its take of $1.5 billion not only trounced the competition as box office champ, but also set the course for eagerly awaited offshoots like: Thor: The Dark World & Iron Man 3. Disney is swinging for the fences, as it also releases The Lone Ranger with Johnny Depp, and several animated films. But despite these huge potential moneymakers, revenue is dominated by the Media Networks division (which includes ABC & ESPN), and Parks & Resorts arm. At 46% and 30% respectively, the two combine to account for 75% of the mighty mouse's annual output. Those percentages have been consistent for the past few years. Studio Entertainment comprises theatrical releases, as well as home video, and accounted for only around 14% of overall revenue. Expect that number to increase this year, in light of the number of high profile releases.
Disney has remained a staple of portfolios, based on consistent profitability and the strength of its iconic and venerable brand. Pixar & Marvel Entertainment combine the leading innovator in computer animation and a vast superhero catalog. The recent purchase of Lucasfilm sets the stage for Disney to capitalize on the strength of the Star Wars franchise, as well as the intriguing prospects of its video game division. It currently trades at 17x earnings, and pays a respectable dividend of 1.4%. What's not to like about those attributes?
For Lionsgate (NYSE: LGF), the independent studio darling that has grown from piker to player since its inception, profit hinges largely on the success of The Hunger Games: Catching Fire, and several other films. Their television programming includes Mad Men, which is still airing. In spite of limited releases, Lionsgate has proven year after year that it knows how to make money on a shoestring. Investors have blown the stock up and its PE ratio is over 350, which is inherently absurd from a pure fundamental aspect. Lionsgate's purchase of Summit Entertainment a year ago capitalized on what was left of the $3 billion Twilight series, but that cow has been milked.
A big issue with this mid cap trading favorite, is that it operates on a tight budget, so there is little margin for error. Despite the impending success of the Hunger Games franchise, coupled with modest television programming, one should be cautious here, since there just isn't anything else to rely on. Limited content has been a concern for investors of the thrifty studio in the past, yet they have somehow managed to prove the naysayers wrong time and time again.
Despite the conclusion of Christopher Nolan's epic Batman trilogy, holders of Time Warner (NYSE: TWX) should not fret. Major entries, including a Superman reboot, along with another Hangover entry and the 2nd Hobbit film, are on tap. The success of the first Hobbit movie is enormous, with gross receipts over $900 million and counting. The Networks division tops revenue for the company and along with Filmed Entertainment, comprises 90% of annual revenue. Listed channels include: TNT, TBS, CNN, HBO, and Cinemax. Original programming on HBO & Cinemax boasts hits like Game of Thrones, Boardwalk Empire, and True Blood. The publishing arm rounds out the remaining 10%. The stock is trading at under 20x earnings, with a nice dividend of over 2%. Time Warner has well recognized brands in all segments of their businesses and should enjoy another big year.
Having multiple revenue streams is imperative when considering these companies. Movies are very expensive to produce and market. These factors can shrink profit margins substantially. With the release lineups this year, 2013 will equal, if not transcend 2012 box office receipts. This might provide a bump in shares of some of the underlying parent companies, but don't expect them to rely solely on that variable, unless you are Lionsgate.
Fool blogger Alfonso Durazo does not own any shares of the companies mentioned in this entry. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!