We reaffirm our long-term Neutral recommendation on Scripps Networks Interactive Inc. (SNI). The company’s fourth quarter of 2012 financial results missed the Zacks Consensus Estimates.
Why Kept at Neutral?
The stock price of Scripps Networks has moved up nearly 40.6% in the last year, significantly outpacing the S&P 500 return of 22.6% over the same period. Scripps Networks is currently trading at the high end of its 52-week price range.
With respect to several valuation metrics, the stock is also trading at significantly higher multiples compared to the S&P 500. We believe the company is currently fairly valued and the stock price will not provide above market gain any time soon.
Meanwhile, Scripps Networks is generating solid growth in advertising and affiliate-fee revenue at its flagship Lifestyle Media businesses and booking higher segment profits.We believe both advertising revenue and affiliate fee revenue will remain healthy in the near future. Scripps Networks currently has a Zacks Rank #3 (Hold).
Balanced View on Scripps Networks
Scripps Networks is a pure-play lifestyle cable network consisting of six channels. All these cable channels have a loyal audience, who also view 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).
Scripps Networksrecently entered into a content licensing deal with Amazon.com Inc. (AMZN). As per the deal, past episodes of Scripps Networks’ popular TV channels will be available on Amazon’s subscription-based video streaming service.
This deal is highly beneficial for Scripps Networks as the company will earn additional revenue from its past shows. There is a possibility that Amazon’s subscribers may in turn become viewers of its live TV shows of Scripps Networks, raising the ratings of these channels.
Nevertheless, the lifestyle programming market is highly competitive. Scripps Networks faces stiff competition in both its Lifestyle Media and Interactive Services businesses from alternative providers of similar services. The company’s national television networks compete for viewers with other broadcast and national television networks as well as with home video products and Internet usage.
Other Stocks to Consider
Though we prefer to be on the sidelines for Scripps Networks, other stocks in the Media/Broadcast industry that warrant a look, include Nexstar Broadcasting Group Inc. (NXST) and Saga Communications Inc. (SGA). Both these stocks currently carry a Zacks Rank #2 (Buy).
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