On Mar 31, 2014, we issued an updated research report on Scripps Networks Interactive Inc. (SNI). Despite increased service and selling expenses, the company is witnessing substantial growth in Advertising and Affiliate-fee revenues at its flagship Lifestyle Media business. As a result, Scripps Networks has raised its outlook for fiscal 2014.
Except for the last quarter, Scripps Networks has delivered positive earnings surprises in all three quarters last year, with an average beat of 0.57%. The company reported financial results for the fourth quarter of 2013 where both its top and bottom line missed the respective Zacks Consensus Estimate. Higher service costs and marketing expenses have resulted in a drop in earnings.
Scripps Networks is a pure-play lifestyle cable network consisting of six channels and operates across 200 countries. All these cable channels have loyal audiences, who also view Scripps Networks content on several non-TV platforms. This helps the company to explore the non-TV verticals, such as magazines (print media) and websites (Internet).
Scripps Networks entered into a content licensing deal with Amazon.com. This is Scripps Networks’ first online-only subscription distribution deal and is expected to prove incrementally positive for it. Strong share buyback plans coupled with uninterrupted payment of higher dividends will continue to act as tailwinds for the company while moving ahead.
On the flipside, nearly 70% of Scripps Networks’ revenues is derived from marketing and advertising spending of the corporate sector in the U.S. Advertising and marketing spending is sensitive to economic conditions, and tends to decline in recessionary periods.
Moreover, Scripps Networks suffered a temporary setback as Discovery Communications dropped its plan to acquire the network company. Discovery Communications has a diversified content network and operates in more than 200 countries with over 100 TV networks. We believe a merger between Discovery Communications and Scripps Networks would significantly benefit both entities.
Scripps Networks currently has a Zacks Rank #4 (Sell).
Stocks That Warrant a Look
Other stocks in the Media/Broadcast industry worth considering include AMC Networks Inc. (AMCX), Entravision Communications Corporation (EVC) and Starz (STRZA). All three stocks currently carry a Zacks Rank #2 (Buy).