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Comcast vs. Charter Communications: Which Entertainment Stock is a Better Buy?

24, 2021
6 min read
This story originally appeared on StockNews
The entertainment industry is growing fast, with surging demand for digital entertainment content. Both Comcast Corporation (CMCSA) and Charter Communications, Inc. (CHTR) are well-established players in the industry and should both benefit from the industrys growth. But which of these stocks is a better buy now? Read more to find out.Comcast Corporation (CMCSA) in Philadelphia, Pa., operates as a media and technology company worldwide. It operates through Cable Communications; Cable Networks; Broadcast Television; Filmed Entertainment; Theme Parks; and Sky segments. In comparison, Charter Communications, Inc. (CHTR) in Stamford, Conn., operates as a broadband connectivity and cable operator company serving residential and commercial customers in the United States.
The entertainment industry has been evolving quickly over the past couple of years, with over-the-top (OTT) platforms substituting traditional entertainment media. Industry players are constantly investing in technologies to offer innovative content and improve their distribution models to remain relevant. The global entertainment and media market is expected to grow at a 10.4% CAGR over the next nine years to approximately $6.71 billion by 2030. Therefore, prominent entertainment stocks CMCSA and CHTR are expected to grow steadily.
CHTR stock has gained 32.3% in price over the past six months, while CMCSA has returned 12.1%. Also, CHTRs 20.6% gains year-to-date compare with CMCSAs 14.1% returns. In terms of their past year’s performance, CMCSA is the clear winner with 38.8% gains versus CHTRs 29.9%.
But which stock is a better buy now? Lets find out.
Recent Developments
On August 18, CMCSA and ViacomCBS Inc. (VIAC) formed a partnership to launch a new subscription video on demand (SVOD) service in more than 20 European territories, encompassing 90 million homes. This partnership is expected to accelerate the companies market expansion and build a leadership position in SVOD in Europe.
CHTR also partnered with ViacomCBS. On July 15, CHTR and ViacomCBS announced comprehensive, multi-year distribution agreements for the continued carriage of ViacomCBS leading portfolio, in addition to licensing ViacomCBS suite of streaming services. The company expects these agreements to allow CHTR to enhance its customers experience while furthering its strategic interests in the advanced advertising realm and aggregated video store concept with the addition of the streaming apps.
Recent Financial Results
CMCSAs revenues increased 20.4% year-over-year to $28.55 billion in its fiscal second quarter, ended June 30. Its operating income grew 18.5% from its year-ago value to $5.51 billion. Its adjusted net income stood at $3.94 billion, up 24.3% from the same period last year. The companys adjusted EPS increased 21.7% year-over-year to $0.84.
CHTRs total revenues increased 9.5% year-over-year to $12.80 billion in its  fiscal second quarter, ended June 30. Its net income grew 33.2% from its year-ago value to $1.02 billion, while its net cash flow from operating activities improved 13.3% year-over-year to $4.00 billion. The companys EPS improved 45.7% year-over-year to $5.29.
Past and Expected Financial Performance
CMCSAs EBITDA and revenues have grown at  CAGRs of 4% and 7.5%, respectively, over the past three years. Analysts expect CMCSAs revenue to increase 11.3% in the current year and 6.5% next year. The companys EPS is expected to grow 15.4% in the current quarter, 19.5% in the current year, and 21.8% in the next year. Furthermore,  its EPS is expected to grow at a 18.7% rate  per annum over the next five years.
In comparison,  CHTRs EBITDA and revenues have grown  at CAGRs of 7.5% and 5.5%, respectively, over the past three years. Analysts expect the companys revenue to increase 7.2% in the current quarter, 6.9% in the current year, and 5.6% in the next year. The companys EPS is expected to grow 44.6% in the current quarter, 38.3% in the current year, and 40.9% in the next year. Furthermore , CHTRs EPS is expected to grow at a 36.8% rate  per annum over the next five years.
CMCSAs trailing-12-months revenue is 2.18 times CHTRs. CMCSA is also more profitable, with a gross profit margin and net income margin of 66.81% and 11.44%, respectively, compared to CHTRs 44.47% and 7.78%.
Furthermore, CMCSAs ROA and ROTC of 4.27% and 5.84%, respectively, compare with CHTRs 4.20% and 5.29%.
Thus, CMCSA is more profitable here.
In terms of forward EV/Sales, CHTR is currently trading at 4.64x, which is 31.5% higher than CMCSA, which is currently trading at 3.18x. Also, CHTRs 11.82 forward EV/EBITDA ratio is 9.8% higher than CMCSAs 10.66.
Thus, CMCSA is relatively affordable here.
POWR Ratings
CMCSA has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. CHTR, in contrast, has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CMCSA has a B grade for Sentiment. This favorable sentiment is justified because analysts expect the stock to gain 13.1% over the next 12 months. CHTR, on the other hand, has a C grade for Sentiment. Analysts expect the stock price to climb  4.4% in the near term, consistent with the Sentiment grade.
Of the nine stocks in the Entertainment – TV & Internet Providers industry, CMCSA is ranked #1, while CHTR is ranked #5.
Beyond what weve stated above, we have also rated stocks for Stability, Quality, Sentiment, and Growth. Click here to view CMCSA ratings. Also, get all CHTR ratings here.
The Winner
The entertainment industry is expected to register steady growth over an extended period, allowing entertainment companies CMCSA and CHTR to deliver substantial returns. However, we think its solid financials and higher profit margins make CMCSA the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment – TV & Internet Providers industry here.
CMCSA shares were unchanged in after-hours trading Tuesday. Year-to-date, CMCSA has gained 15.14%, versus a 20.60% rise in the benchmark S&P 500 index during the same period.
Subhasrees keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Masters degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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