Disney vs. Comcast: Which Stock is a Better Pick?

The U.S. media and entertainment industry is seeing growing consumption of content through OTT (over-the-top) players, as more users are cutting the cord on pay-TV and switching to content streaming.

According to a report published in August this year by FreeWheel, a Comcast company, even when it comes to viewing ads, streaming services made up 45% of ad views, while connected TV like Roku (ROKU) comprised 60% of total ad views.

Using the TipRanks Stock Comparison tool, let us compare two media companies, The Walt Disney Company and Comcast Corporation, and see how Wall Street analysts feel about these stocks.

The Walt Disney Company (DIS)

The Walt Disney Company operates in four business segments, including Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer (DTC) and International business.

Disney is expected to announce its fiscal Q4 results on November 10.

In fiscal Q3, the company’s revenues stood at $17 billion, up 45% year-over-year and beating the consensus estimate of $16.81 billion. The growth in revenues was primarily driven by the growth witnessed in the revenues of two key segments — Disney Media and Entertainment Distribution, and Disney Parks, Experiences, and Products.

Adjusted diluted earnings came in at $0.80 per share, up over 100% from $0.08 last year. Moreover, it topped the consensus estimate of $0.57.

The company’s direct-to-consumer services (DTC) performed very well in fiscal Q3, with subscriptions of 174 million across Disney+, ESPN+, and Hulu.

However, last month, at a Goldman Sachs (GS) Communacopia Conference, Bob Chapek, Disney’s CEO, commented, “In Q4, I think what you can expect to see is that our global paid subs will increase by low single digit millions of subscribers versus Q3. But importantly, our core market sub growth will continue both domestically and internationally in Q4, but we hit some headwinds.”

Chapek pegged the lower-than-expected subscriber growth in fiscal Q4 to the loss of Disney+hotstar subscribers in India as a result of the shift in the timing of the cricket sports league, Indian Premier League (IPL). He also mentioned slower ramp-up of its DTC services in Latin America.

Another subscriber growth headwind that Chapek noted was production delays in programming due to COVID-19. (See Top Smart Score stocks on TipRanks)

Looking at these headwinds, Wells Fargo analyst Steven Cahall believes that “DIS now has a bit more work ahead on DTC. We think disney+hotstar net adds will be negative in F4Q21, but that’s likely more near-term noise than long-term pressure.”

While the analyst reiterated a Buy on the stock following Chapek’s comments, Cahall lowered the price target from $216 to $203 (14.9% upside) on the stock.

Over the long term, the analyst expects Disney+ to have subscribers of 236 million in FY24 versus Disney’s guidance of subscriber numbers between 230 million to 260 million. Moreover, according to Cahall, excluding Disney+hotstar subscribers, he expects DIS’s subscriber base to be 75 million by this fiscal year-end.

Somewhat pessimistically, the analyst added, “That implies low-20mm of core Disney+ net adds p.a. for the next 3 years. Investors likely will be a bit unsettled as these subs will need to be driven by a wider breadth of content beyond DIS’s core genres since the superfans are likely already there.”

On the other hand, Cahall pointed out, “If DIS can ramp up content breadth and depth as it plans to per the December 2020 investor day, then we think FY24 guidance is achievable.”

Turning to the rest of the Street, Wall Street analysts are bullish about Disney, with a Strong Buy consensus rating, based on 17 Buys and 3 Holds.

The average Disney price target of $217.79 implies 23.2% upside potential from current levels.

Comcast Corp. (CMCSA)

Comcast’s three primary businesses include Comcast Cable, NBCUniversal, and Sky. The NBCUniversal business segments include the company’s media, studios, and theme park businesses.

Comcast is expected to release its fiscal Q3 earnings on October 28.

In Q2, the company delivered a strong performance. Comcast’s revenues jumped 20.4% year-over-year to $28.5 billion, surpassing consensus estimates of $27.2 billion. Adjusted earnings rose 21.7% year-over-year to $0.84 per share, exceeding analysts’ estimates of $0.66 per share.

Brian L. Roberts, Chairman and CEO of Comcast commented, “We delivered excellent results in the quarter, continuing our great start to the year. At Cable, our performance was exceptional, highlighted by 11% revenue and 15% Adjusted EBITDA growth, the best broadband and total customer relationship net additions on record for a second quarter, and the most wireless net additions since the launch of Xfinity Mobile in 2017.” (See Analysts’ Top stocks on TipRanks)

Earlier this month, Wells Fargo analyst Steven Cahall reiterated a Sell rating and lowered the price target from $49 to $46 (15.9% downside) on the stock. Explaining the bearish outlook for the stock, Cahall stated that he has a “more cautious stance on the broader Cable sector as we think net adds will slow and capital intensity will be more elevated, resulting in lower future earnings.”

The analyst is “incrementally more bearish” on CMCSA’s Cable Communications business, due to rising competition and “limited headroom for penetration gains.” This is because, according to Cahall, broadband penetration for homes with an annual income of more than $25,000 is now more than 100%, “so net adds must derive from market share gains and household formation.”

Cable Communications made up around 56.1% of CMCSA’s total revenues of $28.5 billion and this business segment added 294,000 net new customers in Q2, up 35% year-over-year.

While acknowledging CMCSA’s investment in its network to improve its services, Cahall added that “capacity improvements, DOCSIS4, and wireless builds come at a cost, so we think Cable Communications investments as a % of sales will remain in the low 11%s for the foreseeable future.”

Moreover, Cahall believes that the company’s NBCUniversal will continue with its capex on Theme Parks and invest more in content when it comes to its streaming services like Peacock. As a result, the analyst does not think that “strong FCF [free cash flow] growth or a big increase to capital deployment is ahead for Comcast.”

Indeed, in Q2, free cash flow declined 20% year-over-year to $4.8 billion for Comcast “largely due to the timing of last year’s federal tax payments, which were deferred to the third quarter,” according to Michael J. Cavanagh, CFO of Comcast.

Turning to the rest of the Street, Wall Street analysts are, however, bullish about Comcast, with a Strong Buy consensus rating, based on 13 Buys, 2 Holds, and 1 Sell.

The average Comcast price target of $68 implies 24.3% upside potential from current levels.

Bottom Line

While analysts are bullish about both Disney and Comcast, based on the slightly higher upside potential over the next 12 months, Comcast does seem to be a better buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

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