Macquarie analyst Tim Nollen recently stated that none of the top five Hollywood stocks were worth recommending.

“‘Ad revenue did not improve versus the first quarter, and cord-cutting intensified,’ the media expert highlighted in his Aug. 11 review of the latest Hollywood quarterly earnings season. ‘Only Disney and Comcast offer long-term earnings growth thanks to direct-to-consumer,’” The Hollywood Reporter reported Nollen’s recent comments from a note to clients. 

The entertainment-focused site highlighted some other negative comments about the industry from analysts. It’s a grim time for Hollywood stocks.

“Nollen noted that pay TV subscribers fell 10.9 percent year-over-year across publicly traded cable, satellite, and telecom operators, or around 8.5 percent when including virtual distributors. “This contributed to linear TV affiliate revenues worsening to -3.9 percent year-over-year at the major network groups,” The Hollywood Reporter reported further comments from the analyst. 

There are, however, three little-known Hollywood stocks you should buy. Read on, and I’ll tell you about them. 

24/7 Wall Street Insights

• Ziff Davis (ZD) has an enterprise value that’s less than 5x EBITDA.
• Cable One’s (CABO) broadband service focuses on an underserved market.
• The CW Network’s transformation would substantially increase the value of Nexstar Media Group (NXST).
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Ziff Davis (ZD)

Ziff Davis (NASDAQ:ZD) is the first name on my list. It is the publisher of media titles, including PCMag, Mashable, and others. According to S&P Global Market Intelligence, its EBITDA (earnings before interest, taxes, depreciation, and amortization) in the last 12 months was $415.1 million, or 30.4% of its $1.37 billion in revenue. 

I don’t think there’s any question that the SMID cap is a contrarian value play. Its shares are down 27% in 2024 and over 33% in the past five years.

The company’s second-quarter results, reported in early August, didn’t help its share price. Its revenue was $320.8 million, $12.54 million less than the analyst estimate and 1.6% less than Q2 2023. On an adjusted basis, it earned $1.18 a share, 11 cents worse than Wall Street’s estimate, and a 7.1% decline from a year ago. 

“Our recent acquisition activity gives us confidence that we are back on the path to steady and compounding growth,” said Vivek Shah, Chief Executive Officer of Ziff Davis. “We are prepared to continue to act with conviction and decisiveness on accretive, value-driving opportunities.”

The company’s most recent acquisition was completed in early April. It paid $187.5 million for TDS Gift Cards, a leading provider of gift card processing and program management solutions for high-growth online and app-based brands. 

Ziff Davis expects its adjusted EBITDA to be $512 million at the midpoint of its guidance in 2024. Its enterprise value is $2.50 billion, just 4.9 times this estimate. 

Cable One (CABO)

Cable One (NYSE:CABO) provides broadband services to more than 1 million residential and business customers in 24 states. Its brands include Spark and Cable One. Owned by Graham Holdings (NYSE:GHC) — the Graham family’s (former owners of Washington Post) holding company — until it spun off the cable business in 2015, Donald E. Graham still owns more than 8% of Cable One. 

According to S&P Global Market Intelligence, its EBITDA (earnings before interest, taxes, depreciation and amortization) in the last 12 months was $835.1 million, or 51.2% of its $1.63 billion in revenue. 

Cable One stock, like Ziff Davis, is not having a good year. It is down over 35% in 2024 and over 72% over the past five years. 

It reported Q2 2024 results in early August. Revenues fell 7.0% to $394.5 million, while its net income was down 13.8%, to $47.6 million. However, it managed to maintain an adjusted EBITDA margin of 53.8%, just 70 basis points lower than a year ago. 

The company continues to focus on a quality broadband product for rural Americans. Over time, this focus will reward shareholders. 

Its enterprise value of $5.36 billion is just 6.52 times EBITDA, its lowest multiple since being spun off in 2015.  

Nexstar Media Group (NXST)

Nexstar Media Group (NASDAQ:NXST) is about local television broadcasting. It owns or partners in more than 200 stations across America, which reach 68% of the country’s population. Its stations are the top affiliates of broadcast networks Fox, CBS, NBC and ABC.

According to S&P Global Market Intelligence, its EBITDA (earnings before interest, taxes, depreciation and amortization) in the last 12 months was $1.41 billion, or 28.3% of its $4.99 billion in revenue.

One area where the company continues to focus is on transforming the CW Network. In August 2022, it acquired majority control (75%) of the broadcast network. Nexstar paid no cash for control but assumed CW Networks’ $100 million debt. That move is already paying dividends.    

“Nexstar has owned the network for less than two years, and we’re making excellent progress as we continue on our march to turning that business around,” stated CEO Perry Sook in its Q2 2024 conference call. 

“The CW operating loss improved by $33 million in the second quarter and by $83 million year to date, largely driven by our reductions in programming costs and SG&A. For the full year, we remain on plan and continue to expect The CW’s operating loss to improve by over $100 million.”

If it can make CW profitable, its shares will be worth considerably more than where they’re currently trading. Of the three stocks, this one has the best risk/reward proposition.

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