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Netflix Inc. has been firing on all cylinders, but analysts see little upside for the stock from here. That sets the stage for a screen of media companies, to see which ones are favored by analysts and which are expected to increase sales and profits most rapidly over the next two years.
Shares of Netflix Inc.
NFLX
rose 11% on Wednesday, following the video-streaming pioneer’s report late Tuesday of a spike in quarterly profits from a year earlier, as revenue rose 12.5%. That last figure showed the effect of newer advertising-supported subscriptions, as well as what the company calls “monetizing sharing.” Netflix took a flexible approach to curb password sharing, including giving users the ability to add family members to their accounts for less than it would cost to add another subscription. Compare that 12.5% sales-growth figure with year-over-year increases ranging from 1.9% to 7.8% over the previous four quarters.
Netflix also added 13 million subscriptions during the fourth quarter, when analysts had expected an increase of 8.7 million.
MarketWatch’s Jon Swartz explained how Netflix has been changing its programming mix to limit costs while remaining competitive.
With so many good things happening at Netflix, it might surprise you to learn that Deutsche Bank analyst Bryan Kraft downgraded the stock to a hold rating from a buy rating, writing in a note to clients that the company’s leading competitive position is “fully priced into the stock at these levels.” He also raised his price target for the stock to $525 from $460. His new target is 4% below Netflix’s closing price of $544.87 on Wednesday.
Netflix’s sector is not a high flier
Netflix is part of the S&P 500 communications sector, which was tied with information technology for the best performance this year through Wednesday among the 11 sectors in the U.S. benchmark index. This table shows how the sectors have performed, and it also shows their weighted forward price-to-earnings ratios:
| Sector or index | 2024 return | 2023 return | 2022 return | Return since end of 2021 | Forward P/E | P/E to 5-year avg. | P/E to 10-year av. | P/E to 15-year avg. |
| Communication Services | 6.7% | 56% | -40% | 0% | 18.1 | 95% | 96% | 103% |
| Information Technology | 6.7% | 58% | -28% | 21% | 27.8 | 122% | 146% | 165% |
| Financials | 1.9% | 12% | -11% | 2% | 14.6 | 99% | 103% | 110% |
| Healthcare | 1.8% | 2% | -2% | 2% | 18.5 | 112% | 113% | 125% |
| Consumer Staples | -0.3% | 1% | -1% | 0% | 19.4 | 97% | 100% | 109% |
| Industrials | -1.2% | 18% | -5% | 10% | 19.7 | 94% | 106% | 116% |
| Energy | -2.3% | -1% | 66% | 60% | 11.2 | 102% | 60% | 69% |
| Consumer Discretionary | -2.3% | 42% | -37% | -12% | 25.2 | 82% | 98% | 113% |
| Materials | -4.6% | 13% | -12% | -6% | 18.6 | 108% | 113% | 121% |
| Real Estate | -4.7% | 12% | -26% | -21% | 17.3 | 88% | 92% | 92% |
| Utilities | -5.4% | -7% | 2% | -11% | 15.2 | 83% | 87% | 95% |
| S&P 500 | 2.1% | 26% | -18% | 6% | 19.9 | 103% | 111% | 123% |
| Source: FactSet | ||||||||
Total returns include reinvested dividends. Looking at the communications sector, you can see that it is flat from the end of 2021, following the market’s seesaw pattern with an 18% decline for the S&P 500
in 2022, followed by a 26% return in 2021.
The table also includes forward price-to-earnings ratios, which are based on Wednesday’s closing prices and consensus earnings-per-share estimates for the next 12 months among analysts polled by FactSet. These are compared with average forward P/E ratios (based on rolling forward-earnings estimates for those time periods), and you can see that on this basis, the communications sector trades a bit below or above its five-, 10- and 15-year average levels.
The full index and several sectors trade higher than the averages for all three periods, and the comparison of current P/E to the 15-year average is striking for the full index and a few of the sectors — especially information technology, with a current P/E valuation at 165% of its 15-year average.
You pay a higher price for more rapid growth. Based on aggregate calendar-year estimates, the S&P 500 communications sector, which is tracked by the Communication Services Select Sector SPDR exchange-traded fund
,
is expected to show two-year compound annual growth rates of 5.8% for sales and 14.8% for earnings per share through 2025. In comparison, the S&P 500 Information Technology sector, tracked by the Technology Select Sector SPDR ETF
,
is expected to have a sales CAGR of 9.3% and an EPS CAGR of 16.6% through 2025.
Screening the communications sector
This sector includes companies lumped in with “big tech,” such as Alphabet Inc.
GOOGL
and Facebook parent Meta Platforms Inc.
META.
Alphabet owns YouTube and YouTube TV, the latter being a popular option for cable cord-cutters who want traditional channels in a more affordable package.
The sector also includes Walt Disney Co.
DIS,
Warner Bros. Discovery Inc.
WBD
and Paramount Global
PARA
— three companies going through upheaval with high levels of debt as the streaming business model continues to shake out and as consumer habits change. All three own major movie studios. Analysts at MoffettNathanson expect U.S. domestic box-office sales to decline 10% this year to $8 billion and then to increase 8% in 2025 to $8.6 billion. That 2025 figure would be 24% below the firm’s estimate for 2019. It would seem that much of the movie-theater audience that was lost during the COVID-19 pandemic isn’t coming back.
So the steaming wars will continue, and the playing field is likely to change. Paramount is in play, with Skydance Media and a group of investors working on a bid to take the company private, according to a CNBC report.
The S&P 500 communications sector includes 19 companies, and we’re showing the entire list three times, first with a roundup of analysts’ ratings, then with a look at expected growth rates for sales and earnings, and finally with a summary of debt levels.
Ratings summary
Here are all of the companies in the S&P 500 communications sector, ranked by percentage of buy or equivalent ratings among analysts polled by FactSet.
| Company | Ticker | Share buy ratings | Share neutral ratings | Share sell ratings | Jan. 24 price | Cons. price target | Implied 12-month upside potential |
| T-Mobile US Inc. | TMUS | 89% | 7% | 4% | $162.00 | $181.83 | 12% |
| Live Nation Entertainment Inc. | LYV | 85% | 10% | 5% | $89.35 | $113.11 | 27% |
| Alphabet Inc. Class A | GOOGL | 83% | 17% | 0% | $148.70 | $156.80 | 5% |
| Take-Two Interactive Software Inc. | TTWO | 81% | 15% | 4% | $165.90 | $173.58 | 5% |
| Meta Platforms Inc. Class A | META | 81% | 16% | 3% | $390.70 | $392.53 | 0% |
| Walt Disney Co. | DIS | 73% | 20% | 7% | $93.50 | $102.17 | 9% |
| Match Group Inc. | MTCH | 66% | 34% | 0% | $36.94 | $42.55 | 15% |
| News Corp Class A | NWSA | 63% | 37% | 0% | $24.63 | $27.77 | 13% |
| Comcast Corp. Class A | CMCSA | 61% | 39% | 0% | $43.80 | $50.12 | 14% |
| Netflix Inc. | NFLX | 61% | 33% | 6% | $544.87 | $557.55 | 2% |
| Warner Bros. Discovery Inc. Series A | WBD | 59% | 38% | 3% | $10.41 | $15.25 | 47% |
| Electronic Arts Inc. | EA | 55% | 45% | 0% | $137.86 | $148.52 | 8% |
| Verizon Communications Inc. | VZ | 52% | 41% | 7% | $41.28 | $43.97 | 7% |
| Omnicom Group Inc. | OMC | 50% | 43% | 7% | $89.15 | $97.92 | 10% |
| Interpublic Group of Cos. | IPG | 43% | 57% | 0% | $32.23 | $35.27 | 9% |
| Charter Communications Inc. Class A | CHTR | 41% | 52% | 7% | $371.39 | $445.83 | 20% |
| AT&T Inc. | T | 41% | 48% | 11% | $16.68 | $18.32 | 10% |
| Fox Corp. Class A | FOXA | 28% | 64% | 8% | $31.41 | $35.29 | 12% |
| Paramount Global Class B | PARA | 27% | 33% | 40% | $13.36 | $14.40 | 8% |
| Source: FactSet | |||||||
You should do your own research to form your own opinion before making any investment. One way to begin is to click on the tickers for more about each company.
There are six companies in the sector with majority buy ratings and double-digit 12-month upside implied by the price targets: T-Mobile US Inc.
TMUS,
Live Nation Entertainment Inc.
LYV,
Match Group Inc.
MTCH,
News Corp Inc.
NWSA
Comcast Corp.
CMCSA
and Warner Bros. Discovery. (News Corp is the parent of Dow Jones, which publishes MarketWatch.)
It is important for an investor to think about time frames. One year can be a short period for a long-term investment to pan out. For an example within the communications sector, the 10-year total return through 2023 for Electronic Arts Inc.
EA
was 507%, compared with a 211% return for the S&P 500. But during that period, EA’s stock had negative returns in 2018, 2021 and 2022.
Netflix provides another fascinating example: Through 2023, the stock returned 826% — the best in the S&P 500 communications sector, by far. But during that period, Netflix underperformed the S&P 500 in 2014, 2016, 2019, 2021 and 2022.
Now let’s shed light on the analysts’ recommendations by taking a look at their estimates for the next two years.
Expectations for sales and EPS growth
Leaving the components of the S&P 500 communications sector in the same order, here are expected two-year CAGR for sales and EPS from calendar 2023 through 2025, based on consensus estimates among analysts polled by FactSet. The table also includes forward P/E and price-to-sales ratios. At the bottom are estimates and valuation figures for the S&P 500 communications sector and for the entire index.
| Company | Ticker | Two-year estimated sales CAGR through 2025 | Two-year estimated EPS CAGR through 2025 | Forward P/E | Forward P/Sales |
| T-Mobile US Inc. | TMUS | 3.4% | 30.1% | 16.1 | 2.3 |
| Live Nation Entertainment Inc. | LYV | 8.3% | 31.7% | 39.8 | 0.9 |
| Alphabet Inc. Class A | GOOGL | 11.1% | 16.1% | 22.0 | 5.4 |
| Take-Two Interactive Software Inc. | TTWO | 21.9% | 63.4% | 25.5 | 3.8 |
| Meta Platforms Inc. Class A | META | 12.5% | 19.3% | 21.8 | 6.6 |
| Walt Disney Co. | DIS | 4.6% | 17.8% | 20.3 | 1.8 |
| Match Group Inc. | MTCH | 8.2% | 14.4% | 16.7 | 2.8 |
| News Corp Class A | NWSA | 2.6% | 24.4% | 31.0 | 1.4 |
| Comcast Corp. Class A | CMCSA | 1.0% | 10.0% | 10.2 | 1.4 |
| Netflix Inc. | NFLX | 13.0% | 31.8% | 31.5 | 6.1 |
| Warner Bros. Discovery Inc. Series A | WBD | 1.4% | N/A | N/A | 0.6 |
| Electronic Arts Inc. | EA | 5.0% | 9.5% | 17.9 | 4.7 |
| Verizon Communications Inc. | VZ | 1.3% | -0.1% | 9.0 | 1.3 |
| Omnicom Group Inc. | OMC | 4.8% | 7.9% | 11.2 | 1.1 |
| Interpublic Group of Cos. | IPG | 5.1% | 4.6% | 11.0 | 1.3 |
| Charter Communications Inc. Class A | CHTR | 1.7% | 13.4% | 10.1 | 1.0 |
| AT&T Inc. | T | 0.9% | 0.7% | 7.3 | 1.0 |
| Fox Corp. Class A | FOXA | 1.9% | 5.8% | 9.0 | 1.0 |
| Paramount Global Class B | PARA | 2.6% | 78.4% | 12.0 | 0.3 |
| S&P 500 Communications Services | 5.8% | 15.1% | 18.2 | 3.1 | |
| S&P 500 | 5.3% | 12.4% | 19.9 | 2.5 | |
There is no forward P/E ratio for Warner Bros. Discovery, because the company is expected to post net losses for the next four quarters. It is expected to improve to full-year profitability — a penny a share — in 2025. But its forward price-to-sales ratio is very low when compared with those of the sector or the index.
Debt levels
The landscape for content creators is unstable, which means mergers and acquisitions activity has led to some heavy borrowing. Here are levels of total debt relative to consensus estimates for earnings before interest and taxes for the next 12 months among analysts polled by FactSet. Dollar amounts are in millions.
| Company | Ticker | Debt/ est. EBIT | Total debt | Estimated EBIT – NTM | Debt service ratio | Market cap |
| T-Mobile US Inc. | TMUS | 612% | $113,898 | $18,608 | 41% | $187,349 |
| Live Nation Entertainment Inc. | LYV | 667% | $8,421 | $1,262 | 215% | $20,580 |
| Alphabet Inc. Class A | GOOGL | 30% | $29,446 | $99,327 | 654% | $1,721,376 |
| Take-Two Interactive Software Inc. | TTWO | 242% | $3,515 | $1,455 | -80% | $28,214 |
| Meta Platforms Inc. Class A | META | 66% | $36,852 | $55,727 | 853% | $867,200 |
| Walt Disney Co. | DIS | 333% | $50,672 | $15,205 | 36% | $171,436 |
| Match Group Inc. | MTCH | 300% | $3,841 | $1,282 | 603% | $10,041 |
| News Corp Class A | NWSA | 430% | $4,158 | $968 | 110% | $9,390 |
| Comcast Corp. Class A | CMCSA | 413% | $102,503 | $24,839 | 70% | $175,885 |
| Netflix Inc. | NFLX | 159% | $14,543 | $9,138 | 260% | $238,479 |
| Warner Bros. Discovery Inc. Series A | WBD | 2564% | $44,800 | $1,747 | 23% | $25,385 |
| Electronic Arts Inc. | EA | 77% | $1,951 | $2,535 | 440% | $37,080 |
| Verizon Communications Inc. | VZ | 563% | $174,942 | $31,047 | 34% | $173,545 |
| Omnicom Group Inc. | OMC | 271% | $6,415 | $2,364 | 825% | $17,646 |
| Interpublic Group of Cos. | IPG | 306% | $4,693 | $1,535 | 64% | $12,344 |
| Charter Communications Inc. Class A | CHTR | 730% | $98,090 | $13,437 | 88% | $54,936 |
| AT&T Inc. | T | 602% | $154,899 | $25,733 | 52% | $119,262 |
| Fox Corp. Class A | FOXA | 332% | $8,189 | $2,463 | 55% | $7,859 |
| Paramount Global Class B | PARA | 762% | $17,297 | $2,270 | 103% | $8,159 |
The debt figures are as of the end of the companies’ most recently reported fiscal quarters. The debt service ratios are EBIT divided by total interest paid (excluding capitalized interest) for the most recently reported quarters, as calculated by FactSet. It is best to see this number above 100%, but it is also important to keep in mind that this ratio is only a snapshot for one quarter.
For six of the companies, including Warner Bros. Discovery and Paramount, total debt exceeds market capitalization.
Don’t miss: Here’s a new way to consider value for stocks in the S&P 500
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