These are challenging times for media giants. Cable channels are losing subscribers, and folks are turning to non-linear streaming solutions for video entertainment. This has made things interesting for Disney's (NYSE:DIS) ESPN and Time Warner's (NYSE:TWX) HBO, but the two media moguls also have other things going their way.
Assessing which stock is the better buy requires analyzing the strengths and weaknesses of each company. We know what the market thinks. Both stocks are out of favor. Shares of Disney and Time Warner have fallen 20% and 25%, respectively, since hitting all-time highs this past summer.
Both companies have plenty of catalysts to entice investors with the possibilities of a turnaround. Time Warner's DC Comics and Disney's Marvel are the undisputed champs of the superhero realm, and both studios are milking their portfolios for cinematic gold. Marvel's been the one getting the upper hand in recent years, but DC Comics is hoping to make up for lost time. Batman v. Superman: Dawn of Justice hits a crowded multiplex near you later this month, but it's not as if Time Warner's movie arm has been a slouch before that. It has topped $3 billion in global box office receipts for its movies in each of the past nine years.
Disney has more dry powder in its arsenal, armed with Pixar, Marvel, Lucasfilm, and its namesake properties. However, both Time Warner and Disney stand to benefit from the recent revival at the movie theater.
Time Warner is growing slower. It has grown at a slower clip than 5% in each of the past three years. Disney has grown at a better than 6.5% clip in each of its past three fiscal years. Analysts also see Disney growing its top line faster -- up 7% vs. 5% -- in fiscal 2016.
The flip side here is that Time Warner is cheaper by most measuring sticks. Disney is trading at nearly 17 times this fiscal year's projected profitability. Time Warner is fetching just 13 times this new year's earnings forecast. Disney goes for three times trailing sales. Time Warner's trading at just two times trailing sales.
Time Warner's yield of 2.36% is also more compelling than Disney's 1.45% yield, something that will weigh on income investors. There's no denying that Time Warner commands the cheaper valuation, but it's also hard to argue that Disney's catalog of premium content brands and operations is far superior with the healthier recent growth rate, to boot.
Both companies are ultimately in decent shape to survive the revolution of cord-cutting millennials. You probably can't go wrong with either stock, but it wouldn't be a surprise if value investors go with Time Warner as growth investors side with Disney.