Discover Upside in DISCA

 | Dec 08, 2011 | 10:05 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


Imagine if I told you I had a large-cap recommendation with a five-year return of 35%, a company growing revenue at 15% per year with a stock that's undervalued. How about if I told you the company televises some the most popular shows on television, but isn't a major network? Give up?

Discovery Communications (DISCA) is the most widely distributed television brand in the world, reaching more than 200 countries with its programming. According to an EquiTrend study, Discovery is the No. 1 media brand in the U.S. for seven consecutive years. It's the top network for the 25- to 54-year-old demographic; its most popular shows include "Deadliest Catch," "MythBusters," "American Chopper" and Friday's No. 1 show on television, "Gold Rush."

Discovery is one of the few pure-play cable networks. The company reaches a worldwide audience of some 311 million households and more than 1.5 billion total subscribers through 142 networks in 210 countries, broadcasting in 44 languages. The company's brands include Discovery Channel, Planet Green, TLC, Animal Planet, Science Channel, Investigation Discovery, and a 50/50 partnership with Oprah Winfrey for the Oprah Winfrey Network (OWN).

I expect revenues to grow 15.5% in 2011 to $4.27 billion and another 8%-9% in 2012, which is slightly ahead of management's guidance from this week's UBS Media Conference. The growth is coming from strong U.S. networks performance (revenue up 11% YTD) and the fast-growing international network business (up 18% YTD). Year-to-date, the advertising business is up 12% and video distribution revenue is up 15%.

Margins are up too. Full-year adjusted margins in the U.S. business are up 100 basis points to 58% and international margins have gone from 39% to 44% in the last year. Total company margins are up 200 basis points to 45%.

Earnings before interest, taxes, deprecation and amortization are likely to grow 16.5% in 2011 to $1.94 billion and 13%-14% in FY12. Earnings per share (which includes a $2 billion stock buyback) are estimated to be $2.39 in FY11 and $3.00 next year.

I believe Discovery could be a $50 stock by this time next year (up from $41.79 today) simply because of strong free-cash-flow generation, increasing margins, growing international markets and high television ratings. To understand the earnings momentum the company has, all you have to do is look back. In FY06, the company lost $0.32 a share and had revenue of $688 million. Today, revenue is expected to be over $4 billion.

Investors looking to discover profits should take a look at Discovery Communications.

Columnist Conversations

I just wanted to post a quick chart after my 3 day mini-vacation. This daily chart that has been in a buy mod...
Markets having nice start to December. Seeing some movement in my healthcare/biotech portfolio today in the f...
The Dollar Index (DXY) hit a one-tick, 2015 new high at 100.31 yesterday. (11/30), but has turned a touch lowe...
With the markets having rallied so strongly off their August lows, are there any bears left? Are there any sca...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.