Scripps Networks Remains Neutral

We reaffirm our long-term Neutral recommendation on Scripps Networks Interactive Inc. ( SNI - Analyst Report ) following its strong financial results in the second quarter of 2012. Both top and bottom lines beat the Zacks Consensus Estimates. Scripps Networks is generating solid growth in advertising and affiliate-fee revenue at its flagship Lifestyle Media businesses and higher segment profits.

We believe both advertising revenue and affiliate fee revenue will remain healthy in the near future. Recently, the Board of Directors has authorized a new $1 billion of share buy-back program. Further, management has raised its fiscal 2012 financial guidance.

Meanwhile, the stock price has soared nearly 70% in the last year and is currently trading at the high-end of its 52-week price range. We also remain concerned that the U.S. economy is still not fully out of the woods. If the U.S. fails to maintain its recovery momentum, Scripps Networks will again suffer.

Scripps Networks is a pure-play lifestyle cable network consisting of six channels. All these cable channels have loyal audiences, who also views Scripps Networks contents in several non-TV platforms. In the previous quarter, Scripps Networks improved with respect to several financial metrics compared with the year-ago quarter.

Total revenue was up 12.5% and total segment profit was up 3.9%. Affiliate fee revenue was up 13.5% year over year. Advertising revenue was up 11.3% year over year. We believe this trend will continue in the near future.

The company entered into a distribution agreement with AT&T Inc. ( T - Analyst Report ) for its lifestyle networks to be viewed by U-verse network subscribers of AT&T.