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Why Is Discovery (DISCA) Up 35.4% Since Last Earnings Report?

·3 min read

It has been about a month since the last earnings report for Discovery Communications (DISCA). Shares have added about 35.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Discovery due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Discovery's Q4 Earnings & Revenues Beat Estimates

Discovery reported fourth-quarter 2020 adjusted earnings of 76 cents per share, beating the Zacks Consensus Estimate by 4.1% but decreasing 22.4% year over year.

Revenues inched up 0.4% year over year to $2.89 billion and beat the consensus mark by 2.1%.

Quarter Details

Advertising revenues climbed 0.3% year over year to $1.60 billion. Moreover, Distribution revenues inched up 1.2% year over year to $1.22 billion. Other revenues were $65 million, down 11% from the year-ago quarter.

U.S. Networks (61.6% of revenues) revenues increased 1.5% on a year-over-year basis to $1.78 billion. Advertising revenues declined 0.3% while distribution revenues grew 5.3%.

Subscribers of Discovery’s fully distributed networks were 3% lower on a year-over-year basis. Total portfolio subscribers declined 5% year over year.

International Networks revenues (38.3% of revenues) slipped 1.3% year over year to $1.11 billion. Advertising revenues were up 1.5%, while distribution revenues were down 4%.

Notably, total share of viewing across the international portfolio in the fourth quarter increased 4% on average, with strong share growth in the United Kingdom, Spain and Portugal.

In the fourth quarter, selling, general and administrative (SG&A) expenses increased 2% from the year-ago quarter to $809 million. This year-over-year growth was due to 8% increase in International Network’s SG&A.

Adjusted operating income before depreciation & amortization (“OIBDA”) decreased 9.3% from the year-ago quarter to $1 billion. Excluding the foreign-exchange impact, OIBDA decreased 8%.

U.S. Networks adjusted OIBDA increased 2.3% from the year-ago quarter to $946 million.

However, International Networks’ adjusted OIBDA declined 37.8% from the year-ago quarter to $196 million. Excluding the forex impact, adjusted OIBDA was down 35%.

GAAP operating income declined 30.8% year over year to $488 million.

As of Dec 31, 2020, cash & cash equivalents were $2.09 billion compared with $1.89 billion as of Sep 30, 2020.

Discovery repurchased shares worth $213 million in the reported quarter. Currently, $1.4 billion of the $2-billion authorization remains as of Dec 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.61% due to these changes.

VGM Scores

At this time, Discovery has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Discovery has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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