After 30% Gain, Pivotal Says The Time To Buy Discovery Communications Has Passed

Pivotal Research Group upgraded Discovery Communications Inc. DISCA in early June to a bullish stance, and investors who bought at the time were rewarded with a 30-percent return in two short weeks.

The Analyst

Analyst Brian Wieser downgraded Discovery Communications from Buy to Hold with an unchanged $28 price target.

The Thesis

An upgrade of Discovery in early June was "opportunistic," and Pivotal's prior price target increase from $24 to $28 was based on a more positive view of expected synergies from the Scripps transaction, Wieser said in the upgrade note. (See the analyst's track record here.)

Discovery shares have soared since the upgrade to the point where a bullish stance is no longer justified, Wieser said. 

Multiple "legitimate concerns" surrounding the stock remain, the analyst said:

• A reliance on a small number of core network brands.
• Investor perceptions, warranted or not, of the "death of TV advertising." 
• A deceleration in pay TV subscription growth or average revenue per user.

It is unlikely any larger media property sees an urgent need to pursue an acquisition of Discovery, Wieser said.

The company is still in a position to generate returns to investors, but with the stock trading near $28 per share, prospective buyers may be overpaying, the analyst said. 

Price Action

Shares of Discovery Communications were trading lower by 1.5 percent at the time of publication Monday morning.

Related Links:

Macquarie: Discovery Communications Could Be In Play As A Buyer Or A Seller

Exploring An Upgrade On Discovery Communications, Questions Remain