On Oct 1, 2013, we initiated our coverage on
Discovery Communications Inc.
) with an Underperform recommendation. In the second quarter of
2013, the company's top and bottom lines lagged the Zacks
Consensus Estimate. Moreover, management lowered its previously
given financial outlook for full-year 2013.
Discovery is a pure-play non-fiction TV content developer. The
non-fiction media market is highly competitive and as a leading
player of this segment, Discovery is also facing fierce
competition. The company's national TV networks compete with
other broadcast and national TV networks. Discovery is highly
susceptible to changes in the distribution and viewing of TV
channels. Massive growth of personal digital video recorders
(DVRs), video-on-demand technology, IPTV, smartphones and tablets
may completely change the TV viewing landscape, which may
jeopardize the company's business model.
In the second quarter of 2013, Discovery was significantly
hurt by higher taxes and amortization costs related to the SBS
Nordic acquisition. Management also stated that the company's
bottom line will continue to decline owing to the SBS Nordic
acquisition. In addition, a large portion of Discovery's total
revenue is generated from outside the U.S., which is susceptible
to near-term global macroeconomic volatility and foreign currency
exchange rate fluctuations.
Other Stocks to Consider
Discovery currently has a Zacks Rank #4 (Sell). While we
prefer to avoid Discovery until we see signs of improvement in
the company's performance, other media stocks worth a look are
Cumulus Media Inc.
Phoenix New Media Ltd.
). All three stocks currently carry a Zacks Rank #1 (Strong
CUMULUS MEDIA (CMLS): Free Stock Analysis
DISCOVERY COM-A (DISCA): Free Stock Analysis
PHOENIX NEW MED (FENG): Free Stock Analysis
STARZ-LIB CAP-A (STRZA): Free Stock Analysis
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