On Mar 14, 2014, we issued an updated research report on
Discovery Communications Inc.
). Robust revenue and viewership growth coupled with rating
improvement have encouraged the company to raise its guidance for
Discovery has delivered positive earnings surprise in the last
two quarters of the financial year, with an average beat of
negative 0.54%. The company reported mixed financial results for
the fourth quarter of fiscal 2013 with the bottom surpassing the
Zacks Consensus Estimate while the top line missing the same.
Discovery achieved viewership growth for the fifth successive
year. In the last five years, the company launched seven new
channels in the U.S. Strong viewership ratings of several
Discovery channels helped the company to generate healthy
Furthermore, the company expects mid single-digit growth of
affiliate fees from the renewal of three deals and incremental
revenues from the Netflix contract renewal. Recently, the company
renewed its agreement with Time Warner Cable to offer its content
on the latter's TVEverywhere platform. Such video streaming deals
with pay-TV operators will add a revenue stream for Discovery in
the upcoming quarters.
However, deteriorating cash position coupled with mounting debt
may act as headwinds for Discovery while moving ahead. Discovery
is also suffering from customer concentration risks. In the U.S.,
the top 10 distributors accounted for nearly 90% of the company's
total distribution revenue. Similarly, in the International
markets, the top 10 distributors generate more than 50% of the
company's distribution revenues. Loss of any of these
distributors will have significant material impact on the
company's finances. Moreover, the failure to acquire Scripps
Network is a major blow to the company's diversification goal.
Meanwhile, the stock price of the company is currently trading at
the high-end of the 52-week price range.
Discovery currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Other better-ranked stocks that belong to the sector include
Entravision Communications Corp.
Phoenix New Media Ltd.
). All three have a Zacks Rank #2 (Buy).
DISCOVERY COM-A (DISCA): Free Stock Analysis
ENTRAVISION COM (EVC): Free Stock Analysis
PHOENIX NEW MED (FENG): Free Stock Analysis
STARZ-LIB CAP-A (STRZA): Free Stock Analysis
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