Time Warner Inc. (NYSE:TWX) shares are down more than -5.65% this year and recently decreased -0.48% or -$0.44 to settle at $90.64. Live Nation Entertainment, Inc. (NYSE:LYV), on the other hand, is up 62.97% year to date as of 12/05/2017. It currently trades at $42.91 and has returned -6.59% during the past week.
Time Warner Inc. (NYSE:TWX) and Live Nation Entertainment, Inc. (NYSE:LYV) are the two most active stocks in the Entertainment – Diversified industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect TWX to grow earnings at a 8.88% annual rate over the next 5 years.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 6.48% for Live Nation Entertainment, Inc. (LYV). TWX’s ROI is 12.90% while LYV has a ROI of 4.40%. The interpretation is that TWX’s business generates a higher return on investment than LYV’s.
Cash is king when it comes to investing. TWX’s free cash flow (“FCF”) per share for the trailing twelve months was +1.29. Comparatively, LYV’s free cash flow per share was -1.98. On a percent-of-sales basis, TWX’s free cash flow was 3.43% while LYV converted -4.9% of its revenues into cash flow. This means that, for a given level of sales, TWX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. TWX has a current ratio of 1.50 compared to 1.10 for LYV. This means that TWX can more easily cover its most immediate liabilities over the next twelve months. TWX’s debt-to-equity ratio is 0.85 versus a D/E of 1.68 for LYV. LYV is therefore the more solvent of the two companies, and has lower financial risk.
TWX trades at a forward P/E of 13.99, a P/B of 2.60, and a P/S of 2.32, compared to a forward P/E of 101.76, a P/B of 6.45, and a P/S of 0.94 for LYV. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. TWX is currently priced at a -10.92% to its one-year price target of 101.75. Comparatively, LYV is -7.72% relative to its price target of 46.50. This suggests that TWX is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.60 for TWX and 1.80 for LYV, which implies that analysts are more bullish on the outlook for TWX.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. TWX has a beta of 0.98 and LYV’s beta is 1.06. TWX’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. TWX has a short ratio of 1.96 compared to a short interest of 8.40 for LYV. This implies that the market is currently less bearish on the outlook for TWX.
Time Warner Inc. (NYSE:TWX) beats Live Nation Entertainment, Inc. (NYSE:LYV) on a total of 12 of the 14 factors compared between the two stocks. TWX is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, TWX is the cheaper of the two stocks on an earnings and book value, TWX is more undervalued relative to its price target. Finally, TWX has better sentiment signals based on short interest.