Back to top

Image: Bigstock

Bear of the Day: Discovery Communications (DISCA)

Read MoreHide Full Article

Discovery Communications is a media company that boasts a portfolio with some of the most popular names in cable television: Discovery Channel, TLC, and Animal Planet, as well as OWN: Oprah Winfrey Network, Science Channel, and many more Discovery branded channels.

Its 13 U.S. cable and satellite TV networks reach between 47 and 85 million households each.

No matter how popular Shark Week is, the Zacks Rank #5 (Strong Sell) stock has certainly felt the negative effects of cord-cutting and its continued changes to the television landscape.

Mixed Third Quarter Results

At the beginning of the month, Discovery reported earnings of 43 cents per share (excluding 5 cents from non-recurring items), which fell considerably behind the Zacks Consensus Estimate of 55 cents.

Revenues, though, grew 6% year-over-year to $1.65 billion and outpaced our consensus estimate of $1.638 billion.

In its U.S. Networks division, Discovery said that revenues increased 4% to $823 million, noting that segmental growth was driven by 6% and 3% growth in distribution and advertising revenues, respectively.

But, revenues from the Education and Other division fell 26% to $32 million, primarily due to the impact of the sale of its Raw and Betty production studios.

Total subscribers declined 5% in the U.S., an increase from the second quarter and up 2% in the period a year ago.

Impact of Scripps Network Deal

Earlier this year, Discovery announced that it would be acquiring Scripps Networks Interactive .

Scripps is a fellow media company whose portfolio includes big television names like HGTV, Travel Channel, and the Food Network.

Together, the company will offer 300,000 hours of content and capture a roughly 20% share of U.S. ad-supported cable audiences.

While this is certainly a huge opportunity to take advantage of, the longer-term issues facing the shrinking pay-TV industry would still remain.  

Earnings Estimates Lowered

Overall, it seems that analysts are bearish on DISCA’s future outlook.

For the current quarter, four analysts cut their estimates in the last 30 days, lowering the Zacks Consensus to 45 cents from 61 cents per share; this represents a year-over-year decline of 13.7%.

This sentiment even spills over into next year, where seven analysts revised their estimates lower over the last 30 days. The Zacks Consensus now sits at $2.25 for fiscal 2018, down from $2.50.

Shares Down on the Year

Shares of Discovery have fallen over 38% year-to-date, and over the last three years, the stock has lost roughly half its value.

Discovery currently trades at a forward P/E of 8.47

As I said above, the broad television industry is experiencing some major changes right now—and has been for some time, thanks to cord cutters and the rise of streaming platforms like Netflix (NFLX - Free Report) .

The company will need to smartly utilize its upcoming acquisition of Scripps, otherwise it could fall even farther behind as more and more consumers choose to view content online.

For investors looking for a media stock with more near-term potential, they should consider AMC Networks (AMC - Free Report) , a Zacks Rank #3 (Hold) company that anticipates 22.3% earnings growth for the year.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trade>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Netflix, Inc. (NFLX) - free report >>

AMC Entertainment Holdings, Inc. (AMC) - free report >>