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Bull of the Day: Discovery Communications (DISCA)

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Times are changing for the global media industry, with several major companies jousting for positioning as consumers continue to search for quality original content and streaming options. These big names are getting all the attention, but interestingly enough, smaller—but still recognizable—media moguls like Discovery Communications (DISCA - Free Report) look even stronger.

Discovery is a mass media company with a focus on non-fiction content. It operates Discovery Channel, Animal Planet, Investigation Discovery, Science, TLC, and other spin-off networks. Discovery also recently completed the acquisition of Scripps Network Interactive, which owned Food Network and HGTV, among others.

DISCA is currently sporting a Zacks Rank #1 (Strong Buy) and looks like a great option based on the strength of its content library, its improving earnings outlook, and its attractive valuation metrics.

Latest Earnings and Outlook

In its most recent quarter, Discovery saw adjusted earnings of $0.53 per share, topping our consensus estimate of $0.45. Meanwhile, quarterly revenue of $2.3 billion was in line with estimates and marked year-over-year growth of nearly 44%.

Since then, earnings estimates for Discovery’s fiscal 2018 and 2019 have been moving higher. The Zacks Consensus Estimate for the company is now calling for profits of $2.77 per share, up from just $2.43 per share in just 30 days. Over the same time, our consensus projection for the company’s 2019 earnings has moved 18 cents higher.

It is also worth noting that our Most Accurate Estimate—which only includes the most recent analyst estimates—for 2018 is 20 cents higher than the consensus. This implies that analyst sentiment has been heating up strongly recently, which is a great sign for the stock.

All in all, Discovery is expected to report earnings growth of 24% on the back of 58% revenue growth this year. Current estimates have this being followed by growth rates of 31% and 5% in 2019.

Valuation

On top of its improving earnings outlook, DISCA is trading at an attractive valuation. The stock has a P/E of just 8.5, which comes at a noticeable discount to the “Broadcast Radio and Television” industry average of 11.1. Discovery also has a PEG of 0.6, so investors are clearly getting a great price for its projected earnings growth.

Bottom Line

With Comcast (CMCSA - Free Report) scrambling to disrupt the Disney (DIS - Free Report) – Fox (FOXA - Free Report) deal and Netflix (NFLX - Free Report) continuing to disrupt the industry, investors will be looking for ways to profit from this changing media landscape. Luckily, Discovery already made its major move by buying Scripps and now looks like a great option.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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