Market Overview

Scripps Networks Earnings Preview: EPS, Revenue Growth Expected

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Scripps Networks Interactive (NYSE: SNI), a pure-play lifestyle cable network company, is scheduled to report its fourth-quarter and full-year 2012 results Thursday, February 7, before the markets open.

Going into this report, the company's has seen three straight quarters of earnings growth and revenue has increased in the past two quarters. Investors will be looking for that momentum to continue, as well as any signs of a move from a fixed cable format to a free-form Internet format in which viewers can watch any show at any time.

Expectations

Analysts on average predict that Scripps Networks will report that revenue for the quarter rose almost 11 percent year-over-year to $613.93 million. Earnings of $0.92 per share are also in the consensus forecast. That would be up from a reported profit of $0.84 per share in the comparable period of last year.

Note that in the past 60 days, that earnings per share (EPS) estimate has slipped from $0.94. But Scripps Networks has not fallen short of consensus EPS estimates in the past 10 quarters. The third-quarter earnings of $0.78 per share topped expectations by more than five percent.

Scripps Networks attributed the strong results for the third quarter to higher revenue from both advertising and distributor fees. The company beat consensus estimates in both the top and bottom lines. However, the share price pulled back more than four percent in the week following the third-quarter report.

The consensus forecast for the full year calls for EPS up more than 14 percent year-over-year to $3.35, as well as revenue that is more than 11 percent higher to $2.32 billion. That EPS estimate is down from $3.38 just 60 days ago.

The Company

Scripps Networks Interactive is a lifestyle-oriented content provider for television, digital, mobile and publishing platforms. It operates television networks such as HGTV, Food Network, Travel Channel and Cooking Channel, as well as related websites.

It was split off from the E.W. Scripps Company in 2008, and its headquarters are in Knoxville, Tennessee. The S&P 500 company now has a market capitalization of more than $9 billion. Kenneth W. Lowe has been chairman and chief executive officer for about four years, and in 1994 he founded HGTV.

Competitors include Discovery Communications (NASDAQ: DISCA), which is expected to report a year-over-year earnings decline next week, and AMC Networks (NASDAQ: AMCX), from which analysts expect strong earnings growth in its next quarterly report. Scripps Networks also competes with much larger Walt Disney (NYSE: DIS).

During the three months that ended in December, Scripps Networks faced rumors that it could be bought out by Disney, it named a new chief legal officer and it fell from the number 376 spot on the S&P 500. The last remaining grandson of founder E. W. Scripps passed away in October, ending the trust that controlled the company.

Performance

Scripps Networks has a long-term EPS growth forecast of almost 14 percent, and its price-to-earnings (P/E) ratio is less than the industry average. The operating margin is greater than the industry average, the return on equity is about 31 percent and the return on investment is more than 22 percent.

The number of Scripps Networks shares sold short, as of mid-January, represents less than six percent of the float. That is the highest level of short interest since September.

The consensus recommendation of the 21 analysts surveyed by Thomson/First Call who follow the stock is to hold shares. Eight rate the stock at Buy, though none rate it at Sell. The analysts' mean price target, or where they expect the stock to go, is only about five percent higher than the current share price. Of course, a strong report and/or guidance may prompt raised targets.

The share price has risen about 14 percent in the past year, including more than six percent in the past month. The share price is above the 50-day and 200-day moving averages. Over the past six months, the stock has underperformed the competitors mentioned above, but its performance has been in line with the Dow Jones Industrial Average.

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