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Is There a Shift in Investor Sentiment Regarding Media Companies?

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Mar. 1 2016, Published 5:19 p.m. ET

Year-to-date price performance

Early this month, the Wall Street Journal reported that there seemed to be a shift in investor sentiment regarding the valuation of media companies, with investors looking to value media companies at a premium as compared to cable companies.

The earnings season is nearly over for companies in the media sector. In this series, we will look at how media companies have fared this earnings season and their valuation metrics. We will also look at the reasons behind investors valuing cable companies at a higher premium as compared to media companies.

[marketrealist-chart id=1077544]

Now let’s take a look at the stock price of media companies with respect to cable company Comcast (CMCSA). As the chart above indicates, the price of the Walt Disney Company (DIS) and Viacom (VIAB) has fallen by 9.7% and 12%, respectively, in its year-to-date performance.

In comparison, the stock price of Comcast (CMCSA) has gone up by 2.6% in its year-to-date performance while the price of 21st Century Fox (FOXA) is down by only 0.3% year-to-date.

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Factors affecting media companies’ stock price

Now let’s take a look at the possible reasons for this decline in stock prices of media companies as compared to cable companies.

Until last year, investors feared that cable companies like Comcast are steadily losing subscribers to SVOD (subscription video on demand) services like Netflix (NFLX). However, the recent earnings season seems to indicate that this fear could be unfounded. Cable companies like Comcast gained subscribers instead of losing them. On the other hand, media companies like 21st Century Fox reeled under the impact of a rising dollar and declining program ratings.

We will cover these factors and more in the subsequent parts of this series. For an in-depth overview of the media sector, you can read The US media industry: A three-tiered system.

Comcast makes up 2.9% of the PowerShares QQQ ETF (QQQ). For an investor interested in getting exposure to the television and radio sector, QQQ has 4.9% exposure to the sector.

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