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Scripps Networks' Rating Upgrades Drive Revenues

Zacks Equity Research

On Jul 2, 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. Scripps Networks also saw higher segmental profits mainly due to strong rating upgrades.

Scripps Networks has delivered positive earnings surprises in three quarters last year, with an average beat of 1.41%. The company reported financial results for the first quarter of 2014 wherein the bottom line surpassed the Zacks Consensus Estimate while the top line was on par with the same.

Scripps Networks is a pure-play lifestyle cable network with six channels and has operations 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 Inc. (AMZN). This is Scripps Networks’ first online-only subscription distribution deal and is expected to prove accretive going forward. Also, significant share buyback plans coupled with uninterrupted payment of higher dividends will continue to shareholders value.

On the flipside, nearly 70% of Scripps Networks’ revenues are 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. Thus, Scripps Networks’ high dependence on the volatile corporate sector spending exposes it to considerable risks.

Moreover, Scripps Networks suffered a temporary setback as Discovery Communications (DISCA) dropped its plan to acquire it. 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 have significantly benefitted both the entities.

Scripps Networks currently has a Zacks Rank #3 (Hold). Another stock in the Media/Broadcast industry worth considering is The Walt Disney Company (DIS) which currently carries a Zacks Rank #2 (Buy).

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