3 Recent Deals Show Discovery Communications Management Building A 'Foundation For Future Growth'

Argus analyst Joseph Bonner highlighted Discovery Communications Inc. DISCA as a Value Stock on Friday, reiterated a Buy rating and $40 price target on Class A shares. The report pointed out three main reasons for the firm’s bullishness:

• The robust constant currency revenue growth seen as currency headwinds moderate over the year.
• The raise in the management team’s full year adjusted EPS growth outlook for the second time this year.
• The restructuring plan on which the company is working, which is expected to results in annualized cost savings of $80 million to $120 million.

Beyond these developments, investors should pay attention to three recent deals, which “demonstrate that management is building a foundation for future growth” – even though they will result in increased expenses over the shorter term.

Discovery Communications recently:

• Renewed a long-term carriage agreement with Comcast Corporation CMCSA.
• Acquired broadcast rights for the Rio Olympics.
• Purchased the remainder of Eurosport International, which should prove to be a key growth driver, given Eurosport’s “range of sports broadcast rights and extensive distribution in Europe and other regions.”

“The company is also moving to expand digital distribution with sports as foundational content. Although the controlling interest of famed cable investor John Malone may give some investors pause, we think that Mr. Malone’s involvement likely ensures further M&A moves for Discovery as either an acquirer or a target,” Bonner’s note concluded.