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We reaffirm our long-term Neutral recommendation on Scripps Networks Interactive Inc. (SNI - Free Report) .

The company continues to perform well primarily due to significant growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media businesses and higher segment profit. We believe both advertising revenue and affiliate fee revenue will remain healthy in the near future due to an improving U.S. economy.

Acquisition of a majority stake in the Travel Channel, re-branding of the FLN channel as Cooking Channel, and the divestment of the struggling Shopzilla networks will help the company to maintain its future growth. Scripps Networks now has three very powerful and completely distinct programming categories namely, home, food, and travel.

Scripps Networks is a pure-play lifestyle cable networks consisting of six channels. All these cable channels have loyal audiences, who also views Scripps Networks contents in several non-TV platforms. This helps the company to explore the non-TV verticals such as magazines (print media) and websites (Internet). Recently, the Board of Directors of Scripps Networks has authorized to increase quarterly dividend by a massive 33% from $0.075 per share to $0.10 per share. We believe the primary reason behind this decision is the company’sclear visibility of its future business potential.

However, deterioration in TV viewership rating in the last quarter is a major concern for Scripps Networks. Moreover, despite the increased advertising revenue of the company in the last quarter, it fell below the growth rate of Discovery Communications Inc. (DISCA - Free Report) and News Corp. (NWSA - Free Report) . We believe the positive factors are already reflected in the current valuation leaving little room for above market gain.




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