True, Walt Disney (DIS), Viacom (VIA) and Time Warner (TWX) are sprawling enterprises comprising everything from theme parks to TV networks to magazines. Movie production and distribution is but one of many moving parts in each of these media conglomerate's operations. That said, a bigger-than-expected summer hit or two can indeed provide a catalyst for shares.
Disney, a component of the Dow Jones Industrial Average ($INDU), is looking for a boffo season at the box office with Cars 2, the latest release in the Pirates of the Caribbean franchise and Winnie the Pooh. Shares are up 31% over the last 52 weeks, easily beating a 20% gain for the S&P 500 ($INX), and yet the stock looks neither expensive nor cheap.
It trades essentially in-line with its own five-year average on both a trailing and forward earnings basis, according to data from Thomson Reuters. Less compelling are Disney's operating margins and return on equity, both of which stand below those of peers.
A Dominating Presence
Viacom's Paramount studio likewise has an impressive summer release schedule, including Kung Fu Panda 2, Transformers 3 and Thor. The stock has absolutely crushed the broader market and peers over the last year, jumping more than 43%. Yet, the valuation still offers a slight discount to its own five-year average on both a trailing and forward earnings basis.
Time Warner's Warner Bros.'s summer slate includes the Green Lantern and The Hangover 2, but the studio is saving its biggest trick for mid-July. That's when it will release Harry Potter and the Deathly Hallows: Part 2. Time Warner's shares have been disappointing over the last 52 week, rising just 16% to lag the broader market.
On the other side of the ledger, that underperformance has made the relative valuation look like a bargain. The stock trades at deep discounts to its own five-year average by both forward and trailing earnings. Operating margins stand at more than 20%, and the dividend yields a healthy 2.7%. Return on equity, however, stands at just 7%, which is well below that of the company's peers. Whether Time Warner is cheap -- or cheap for a reason -- remains to be seen.
For the bull and bear cases on Disney, Viacom and Time Warner, see Face-Off on Stocks above.