What if you could touch 1.5 billion people in over 200 countries with your content? Discovery Communications is the world’s number one non-fiction media company that does just that! Did I mention it’s growing at a breakneck pace? Since you probably watch their productions, you might want to watch the stock.
They are the original 'reality' TV network.
Company Description & Developments Not only does Discovery Communications own traditional media brands like the Oprah Winfrey Network, TLC, Discovery Channel and Animal Planet, they also own the website howstuffworks.com and many more valuable, popular brands.
If you’ve had enough of the Jersey Shore and Real Housewives programs like most of us, the Discovery brands offer cool, unique and informative programming in a world that otherwise lacks interesting, non-fictional TV. Discovery’s programs are eye opening, funny and relatable on many levels according to their reviews (and mine). Its content spans cultures and creeds around the world.
Discovery also does a great job on web integration and content for other forms of media so they can keep up with an evolving space.
Aside from the solid financial growth which we will touch on shortly, I just love their programming! Anecdotally, I hear so much positive chatter about their content coming from men and women in a wide age and social range that it’s hard to argue their reach.
If consumers are indeed getting healthier, they will be more likely to buy cable and satellite. Of course advertisers will be paying more, which is why expectations are for about 20% earnings growth over the next year.
Financial Profile Discovery Communications is a larger mid-cap company (11.8 billion) that is trading at about 18 times trailing earnings (P/E). Looking forward, Zacks Consensus Estimates sees Discovery Communication’s P/E dropping to 15.62, with no change in price from these levels. That puts it into a slightly elevated category, but certainly not overvalued in my opinion.
Discovery Communications jumped to a Zacks Rank 1 Strong Buy just yesterday.
One analyst revised their FY2012 earnings estimate up within the past month, which was most likely the push that got DISCA its current rating.
Last quarter DISCA reported sales growth of 18.25% year over year and 3% over the previous quarter with total sales of 3.8 billion in FY2010. Discovery is expected to earn $2.39 in FY2011 according to the Zacks Consensus Estimate.
Earnings Estimates Expectations are for Discovery to make 69 cents this quarter when they report on February 10th. Of the 16 analysts who cover the media company, the consensus is for the company to grow earnings by 34% in FY2011 and 18% in FY2012.
In terms of the magnitude of analyst estimate trends, we have seen most of the consensus estimates higher than they were 90 days ago. This is not extremely bullish, but certainly positive.
Discovery surprised analysts to the upside by 7.27% last quarter, with the average earnings surprise being a positive 4.20%. Positive surprises have been the norm over the past year.
Market Performance & Technicals Discovery’s stock has really picked up steam over the past month, rising almost 13.5%. This extreme movement may be detraction to analysts upping their targets and estimates.
Momentum for Discovery has really been building since August, but it’s been a rocky road. Given the past behavior of DISCA, it might be best to wait for the pullback before buying, as the stock has been up for nearly 10 days straight. Like many of the stocks I have targeted in our momentum picks, DISCA is knocking on the door of its 52 week high of $45.81.
Even with the elevated volatility, it remains in a bullish channel (since August) and firmly above its 50 and 200 day moving averages of $41.49 and $41.01 respectively.
As I stated earlier, Discovery is a bit volatile, but yet its beta only reads .73. That could also mean that Discovery just has a low correlation to its index, because there is no doubt this stock moves.
Discovery has outpaced the S&P 500 by 9% over the past year and almost 4% over the past month. Given the recent volume decline as DISCA has been rallying, I would be looking for a pullback before entering, perhaps to the $42.00 level.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
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