We reaffirm our long-term Neutral recommendation on
Scripps Networks Interactive Inc.
). The company reported robust financial results for
first-quarter 2013, easily beating the Zacks Consensus
Why Kept at Neutral?
Scripps Networks is generating healthy growth in Advertising
and Affiliate-fee revenues at its flagship Lifestyle Media
businesses and higher segment profits. We believe that both
Advertising revenues and Affiliate fee revenues will remain
strong in the near future. The company is expected to benefit as
the U.S. housing sector is slowly coming out of its prolonged
Scripps Networkshas entered into a content licensing deal with
). As per the deal, the past episodes of Scripps Networks'
popular TV channels will be available on Amazon's
subscription-based video streaming service - Prime Instant Video.
This is Scripps Networks' first online-only subscription
Additionally, the company has also entered into an agreement
Time Warner Cable Inc.
) through which Time Warner Cable's subscribers will be able to
watch several Scripps Networks' channels. Food Network channel is
broadcasted in several parts of Europe, Africa, and the Middle
East through Chellomedia, a division of
Liberty Global Inc.
Nevertheless, we remain quite concerned regarding higher costs
of operations in 2013 as projected by management. Scripps
Networks estimated a 12-14% increase in programming costs and a
7-9% increase in marketing expenses in 2013. Compared to this,
revenues are expected to rise by a mere 7-9%.
Meanwhile, the stock price has soared over 31% in the last
year and is currently trading at the high-end of its 52-week
price range. We believe that Scripps Networks is currently fairly
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