Stocks are back at record highs despite a global pandemic, but that doesn’t mean investors can’t find some bargains in the market.
Three media stocks in particular — ViacomCBS, Discovery Communications and AMC Networks — are relatively inexpensive, with low price-to-earnings ratios based on consensus estimates of 2020 results.
Some would argue that a low P/E in the current market environment could indicate a value trap. However, all three of these companies have solid businesses and are just facing temporary disruptions due to COVID-19.
ViacomCBS shares were trading around $28 as of Aug. 26. The company is expected to earn about $4 per share, which means its stock is trading just under 7 times estimated 2020 earnings.
COVID-19 has negatively impacted most media companies this year, but one positive trend within the industry has been streaming. Even after ViacomCBS reported that Q2 adjusted earnings sank 16% and revenue fell 12%, its streaming subscription and digital-video ad revenue jumped an impressive 25% year-over-year.
CEO Bob Bakish announced earlier this month that ViacomCBS would be launching an international streaming service early next year. The company’s linear TV business may be shrinking, but the hope is its streaming business will help to offset those losses sooner rather than later.
Then there’s Discovery Communications. The stock trades around $23 per share, which puts it right under 12 times its expected 2020 earnings. While some would argue that’s actually a pretty high multiple, it isn’t when you compare it with the broader Communications Services sector, which has a forward P/E of around 23.
The main issue for Discovery Communications is it doesn’t have a solid streaming-service plan yet. Still, it is a free-cash-flow-generating machine, which bodes well in the current uncertain environment.
During its Q2, Discovery reported free cash flow increased to $879 million from $596 million. This year alone, the media giant generated $1.1 billion in free cash flow, and analysts estimate the media outlet will have $1 billion in free cash flow over the next two quarters.
Lastly, AMC Networks’ stock is trading under five times 2020 EPS estimates, at about $25 per share. Shares of the media company are down more than 50% from their 52-week highs and have underperformed the broader market, which itself has risen 19% during the same time period.
AMC’s bet on streaming has been paying off. On the company’s latest earnings call, management said its streaming services actually got a meaningful boost from the global pandemic and expects to hit the high end of its subscriber forecast this year.
Due to the economic uncertainty caused by the coronavirus, there is no way to predict how the rest of 2020 will play out. Analyst estimates for 2020 EPS will vary, but for now these three media stocks look like bargain buys.