Looking ahead, analysts expect Imax’s dominance in the large-screen format to continue. The company’s management calculates that the market can support yet another 1,000 profitable theaters, with the U.S. and China leading the bunch. A deal with the big Chinese firm Wanda Cinema Line will significantly increase the company’s presence in that country. Moreover, this target has been constantly increasing through the years and will most likely continue to grow as the firm penetrates new markets. Emerging economies with fast-growing gross domestic products and middle classes offer plenty of growth opportunities in an environment with reduced competition.
Further market share should be gained thanks to its technology that substantially cuts the costs implied in analog film distribution. Additionally, the company’s recently-announced intention to start selling high-end $2 million home theater systems to individual customers could boost the firm’s revenues and margins even further.
After a movie is produced and screened at theaters, it eventually arrives on TV. This is where Comcast Corporation (NASDAQ:CMCSA) comes in. As U.S.´s largest cable operator with over one fourth of the market share, the company serves approximately 22.525 million video customers, 17.550 million high-speed Internet customers, and 9.063 million phone customers; this is a company to watch. Although the company is expected to deliver industry-outperforming earnings-per-share growth rates of around 18% each year for the next five years, its stock currently trades at a 19.5% discount in comparison to its peers´ average. It is valued at 16.5 times its earnings, offering an attractive entry point for long-term investors.
Although it is a diversified business that constantly expands its product offering –as evidenced by its recent purchase of NBC Universal – its cable operation remains its core business. In my view, one factor that has been determinant in Comcast Corporation (NASDAQ:CMCSA)’s leading position within the U.S. market is its capability to offer television, Internet, and phone services (often known as a “triple play”) through one sole network. Although large competitors like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) have tried to emulate Comcast Corporation (NASDAQ:CMCSA) by offering television services, its impact on Comcast Corporation (NASDAQ:CMCSA)’s market share remains marginal.
To cope with the advance of digital media, the company has focused considerable efforts on developing new web and tablet-based platforms and creating incentives for customers to stick to the service through exclusive content agreements with important producers as well as new creative capabilities provided by the NBCU acquisition. Moreover, the company’s important stake in the Internet segment also helps it face the increasing migration to the web by bringing in revenues from this source. Reflecting plenty of confidence in future results and a strong financial situation, the management has been approving several billion-dollar share repurchase programs over the past few quarters and yielding 1.76% in the form of dividends.
Bottom line
Above I have succinctly described three companies that operate different segments within the entertainment industry ranging from the production of content to its arrival to TV, typically going through the cinemas –although not always. Holding leading positions amongst their industries and offering compelling growth prospects and expansion plans for the years to come, I’d recommend adding Lions Gate Entertainment Corp. (USA) (NYSE:LGF), IMAX Corporation (USA) (NYSE:IMAX) and Comcast (Class A stock) to your long-term portfolio. In compound, these companies are expected to deliver an average earnings-per-share annual growth rate of around 25% for the next five years, comfortably outperforming their peers and the general market.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Imax. The Motley Fool owns shares of Imax. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Entertainment Stocks to Include in Your Portfolio originally appeared on Fool.com is written by Damian Illia.
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