Market Overview

MKM: Discovery Undervalued Given Growth Potential, Free Cash Flow Outlook

MKM: Discovery Undervalued Given Growth Potential, Free Cash Flow Outlook
Related DISCA
Pivotal Lifts Sell Rating Off Of Discovery's Stock
Tiger Woods, Monster Beverage In Talks For Branded Drink

A combination of secular headwinds and growth in the international segment, along with a strong free cash flow outlook, could mean Discovery Inc (NASDAQ: DISCA) shares are undervalued.

The Analyst

Eric Handler of MKM Partners upgraded Discovery from Neutral to Buy and reiterated a $28 price target. 

The Thesis

“In our view, Discovery's shares do not adequately reflect the quality of its multiyear growth drivers and its potential upside opportunities," Handler said in a Tuesday note.

While the domestic cable network industry has secular headwinds, Discovery is expected to see growth opportunities in its international segment in the coming years, the analyst said.

Skinny bundles, vMVPDs and OTT platforms will help to “lessen the impact" from cord cutting, Handler said. 

Discovery's strong FCF prospects should lead to “rapid” deleveraging and trigger a new share buyback program in 2019, the analyst said. 

“Based on Discovery's desire to maintain 3.5x net leverage, buyback activity could total upwards of $3 billion in the back half of 2019 and nearly $4 billion in 2020." 

Price Action

Discovery shares were trading up more than 3 percent before the close Tuesday. 

Related Links:

Jim Cramer Weighs In On PayPal, Discovery And More

Pivotal Research Likes Discovery Despite Legitimate Investor Concerns

Latest Ratings for DISCA

Dec 2018Pivotal ResearchUpgradesSellHold
Nov 2018CitigroupMaintainsBuyBuy
Nov 2018MKM PartnersMaintainsBuyBuy

View More Analyst Ratings for DISCA
View the Latest Analyst Ratings

Posted-In: Eric Handler MKM PartnersAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


Related Articles (DISCA)

View Comments and Join the Discussion!

Latest Ratings

TVPTImperial CapitalDowngrades15.8
ACORGoldman SachsDowngrades10.0
BCOVB. Riley FBRUpgrades12.0
CAMPFirst AnalysisDowngrades22.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Legislation, Accelerated Spending Force Social Security To Pull From Reserves, Risk Depletion By 2034

Needham Shifts To Neutral On Okta, But Continues To Have Positive Long-Term View