Memorial Day was a bust for movies. What’s usually among the biggest days of the year at the box office turned out a dud with $190 million, the lowest take since 2001.
But with summer comes a whole new crop of flicks from Walt Disney (DIS), Comcast (CMCSA) and Time Warner (TWX) that are about to descend upon your local IMAX (IMAX) theater.
Summer 2015 is looking like it could be the $5 billion monster that Hollywood has long sought. If it is, then you’ll want to buy some movie stocks to join in on the fun.
Here’s a look at the media stocks best set to profit, and the summer movies propelling them.
Summer Media Stocks to Buy: IMAX Corp (IMAX)
IMAX stock is up more than 50% in the past year, hitting new all-time highs it hasn’t even approached since the beginning of the 2011 summer season.
IMAX stock started to fall after peaking in June 2011, and earnings-driven analysts downgrades only accelerated the drop. The stock struggled for more than a year, until Christopher Nolan shot 2012’s The Dark Knight Rises almost entirely with IMAX cameras, unleashing a monster hit on the movie-going public.
Other major directors are now embracing the format, attempting to interest audiences in movies shot on 65 or 70mm film, specifically intended to be seen on an IMAX screen, like Nolan’s Interstellar (2014) and Quentin Tarentino’s upcoming The Hateful Eight.
Things look good right now for IMAX. Despite the fact the last 20 years saw ticket sales peak at 1.55 billion in 2002, and that 2014 was the lowest year for the box office since 1995, ticket revenue has actually doubled thanks to a serious boost in premium prices for IMAX and 3D.
Summer Media Stocks to Buy: Walt Disney (DIS)
DIS stock has gained a scorching 38% over the past year, proving that the House of Mouse still has plenty of strength. Sure, Disney did see a 6% decline from its studio segment, but made up for it with strong performances from its media networks and consumer products.
Disney’s cooking up a couple summer movies to remedy the lackluster performance of Tomorrowland, and DIS’ current quarter will post strong results from Cinderella and the uber successful Avengers: Age of Ultron, which has grossed more than $1.3 billion worldwide.
The summer release of Ant-Man is primed to capitalize on the success of Age of Ultron, and Pixar’s Inside Out should provide the family flick Disney was hoping for in Tomorrowland.
And if you think Age of Ultron was the high water mark for DIS this year, then you’re severely underestimating the upcoming Star Wars: The Force Awakens, opening over the holiday season, and a second Pixar animated film, The Good Dinosaur, which marks the first time ever two Pixar features were released in the same year.
Summer Media Stocks to Buy: Comcast Corp (CMCSA)
While there’s likely some degree of bitterness over the Time Warner Cable (TWC) deal with Charter Communications, at least Comcast’s Universal Pictures executives must be celebrating the success of Pitch Perfect 2, which collected $172 million domestically and $92 million in foreign sales.
CMCSA stock climbed 13% in the last year, and like Disney, Comcast is a massive institution with a diverse media suite home to Universal Pictures, NBCUniversal and Universal theme parks.
Revenues at the filmed entertainment segment of NBCUniversal increased by 7% over the first quarter of 2015, when lower ticket sales were offset by its content licensing and home entertainment segments.
Universal’s domestic revenue in 2014 fell 22% year-over- year, but Universal’s 2015 is already shaping up to be better than 2013, thanks to 50 Shades of Grey and Furious 7 sending Universal past the $1 billion mark faster than any studio ever has.
Universal Pictures brought in about $5.5 billion of Comcast’s total revenue; Not a huge percentage, but relevant enough that a banner year for filmed entertainment could send CMCSA stock higher. And CMCSA already has the highest grossing opener of all time in Jurassic World.
It’s hard not to see Universal continuing to capitalize on an already record-breaking season with a summer release schedule chocked full of potential hits like Ted 2, Minions, Trainwreck, and Straight Outta Compton.
Summer Media Stocks to Buy: Time Warner (TWX)
Time Warner beat earnings estimates of $1.09 per share last month, posting $1.19 per share to best analysts by 10 cents. The strong Q1 results were led by Warner Bros. with $3.2 billion in revenue (a 4% year-over-year increase), but Time Warner’s Turner Networks strong performance helped offset WB’s decline in operating income from higher advertising costs.
Warner Bros. isn’t to be taken lightly. The studio dominates Hollywood, generating more than $26 billion over the last 20 years and claiming a 15% share of the market.
This year TWX is expected to grow EPS by 12.3%, thanks to films like San Andreas, opening to the tune of $53.2 million and Mad Max: Fury Road, raking in a worldwide total of more than $300 million.
The rest of its summer is packed with movies like Magic Mike XXL, Vacation, The Man from U.N.C.L.E., and We Are Your Friends. And next year’s growth prospects are even better. There’s a little film coming out in 2016 called Batman V. Superman: Dawn of Justice, marking the beginning of Warner Bros. attempt at creating a storied universe for its comic characters in the vein of Disney’s Marvel cinematic universe. Some believe BvS could top $1.4 billion in worldwide gross.
I expect TWX will not only hold on to that 15%, but try to claw its way to a higher share. Meanwhile, EPS are expected to ride superheroes’ capes to a 24% increase for 2016.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
