MKM: Discovery's 'Overall Outlook Remains Challenged'

In a new report, analysts at MKM Partners took a close look at Discovery Communications Inc DISCA. According to analysts, Discovery Channel has exhibited some domestic strength recently, but the overall outlook for the company remains challenging.

Weak international business
Relative strength in domestic Discovery Channel ratings has been offset so far in 2015 by continuing forex headwinds in the international business. Discovery’s largest forex exposure is to the Euro, Nordic currencies and the British pound.

Strong domestic business
Analysts like what they see from Discovery’s recent domestic numbers. According to the report, Discovery Channel’s domestic ratings growth more than offsets weakness in some of the company’s smaller networks. Discovery Channel posted total domestic household ratings gains of 35 percent and 12 percent in February and March, respectively.

Targeting women and younger men
Discovery Channel’s new president, Rich Ross, has indicated that the company plans to pursue more female and younger male viewers with its latest programming changes. Discovery’s newest initiatives include special programming such as natural history documentary “Chasing Extinction” and a multi-day programming block focused on mountain climbing.

In addition, Discovery hopes for big hits with new shows such as “Harley Davidson,” “Pacific Warriors,” “Naked & Afraid XL” and “Treasure Quest.”

Outlook
Overall, analysts see a mixed bag for Discovery moving forward. “We see limited upside in Discovery shares over the next couple of quarters as the com pany increases programming investment at Eurosport and begins revamping the programming at its flagship Discovery Channel as part of recent management changes,” analysts explain.

MKM has a Neutral rating on Discovery Communications and a $33 price target on its stock.