Exploring An Upgrade On Discovery Communications, Questions Remain
Credit Suisse upgraded shares of Discovery Communications Inc. (NASDAQ:DISCA) (NASDAQ:DISCB), premised on its view that the near-term outlook is solid. The stock was lifted from Underperform to Neutral, with a price target lowered from $23 to $22.
Analysts Omar Sheikh, Lawrence Dann-Fenwick and Boyao Sun attributed the upgrade to upbeat management commentary on third quarter advertising and international affiliate trends, increased confidence that the Scripps Networks Interactive, Inc. (NASDAQ:SNI) transaction can generate revenue synergies as well as cost savings, especially outside of the United States.
Additionally, the analysts noted that Discovery Communications stock has pulled back steeply.
Credit Suisse pointed to the positive third quarter data points highlighted by management in investor meetings, with solid third quarter U.S. advertising trends, low-double digit growth in scatter pricing and higher ratings at TLC and ID.
Although viewing the deteriorating subscriber trends in the U.S. as a long-term concern, Credit Suisse believes the emergence of non-sports "Entertainment-only" packs will serve to mitigate the decline over the next 12-18 months.
"Q3 international affiliate revenues will be supported by "very healthy" uptake of the Eurosport player app with Bundesliga content in Germany since the start of the new soccer season; and by new distribution deals signed with Amazon.com, Inc. (NASDAQ:AMZN) in the UK and Germany for Eurosport/Discovery," the firm said.
Credit Suisse raised its 2017 earnings per share estimate from $2.21 to $2.26, but lowered its 2018 estimate from $2.51 to $2.47.
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