The bullish case for Discovery Communications Inc. (NASDAQ: DISCA) can be made for multiple reasons that are being overlooked by the Street, according to Jefferies.
Jefferies' John Janedis upgraded Discovery from Hold to Buy with a price target lifted from $26 to $34.
The bullish case for Discovery's stock is based on four near-term encouraging trends, Janedis said in a note. These include:
- Upcoming MVPD renewals along with improvements in current deals could result could result in a distribution growth above the Street's estimates.
- The company likely realized strong upfront online ad pricing with a 7-percent increase in CPM.
- Incremental upside in cost synergies beyond the $600 million run rate target by 2020.
- Stabilization in the international business as a whole with the core Europe and South America markets showing "healthy" trends.
Given the multiple catalysts ahead, Discovery should be able to generate revenue and free cash flow growth at least equal to the group if not better over the coming few years, the analyst said. This isn't reflected in the market's sentiment, however, which values the stock today at 6.6 times estimated free cash flow/share and a $34 price target values the stock in-line with its peers despite boasting faster growth rates than some of its peers.
Shares of Discovery Communications were trading higher by more than 4 percent Tuesday afternoon and hit a new 52-week high of $29.22.
Macquarie: Discovery Communications Could Be In Play As A Buyer Or A Seller
Imperial Capital: Discovery Communications Sell-Off 'Unnecessary'
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|Jul 2018||Credit Suisse||Initiates Coverage On||Neutral|
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