Time to Cash-In on This NASDAQ-Listed Broadcasting Stock – DISCA

Jan 10, 2022 12:00 AM PST | Team Kalkine
Time to Cash-In on This NASDAQ-Listed Broadcasting Stock – DISCA


Discovery, Inc.

DISCA Details

Discovery, Inc. (NASDAQ: DISCA) is a global media company that distributes content through a variety of platforms, including linear platforms such as pay television, free-to-air television, and broadcast television, authenticated GO applications, digital distribution agreements, content licensing agreements, and direct-to-consumer (DTC) subscription products. As of September 30, 2021, it had 20 million paid DTC subscribers. It offers personalized content in around 50 languages in the United States and over 220 countries and territories.

Latest News:

  • WarnerMedia Acquisition Regulatory Approval: The European Commission (EC) granted DISCA's proposed acquisition of AT&T Inc.'s WarnerMedia business unconditional antitrust clearance on December 22, 2021. The EC's approval is a critical step toward the company's proposed merger with AT&T being completed. The WarnerMedia transaction is expected to close in mid-2022, subject to regulatory approvals.

9MFY21 Results:

  • Progress in Revenues: Due to increased advertising and distribution revenues, the company's overall sales climbed by 15.66% to USD 9.00 billion in 9MFY21 (ended September 30, 2021) from USD 7.79 billion during 9MFY20.
  • Improvement in Net Income: DISCA's net income increased to USD 1.11 billion during 9MFY21, up from USD 1.04 billion during 9MFY20.
  • Leveraged Balance Sheet: The company's cash and cash equivalents were USD 3.12 billion as of September 30, 2021, with total debt of USD 14.79 billion.

Key Risks:

  • Distributor Concentration Risk: In the US Networks division, the top ten distributors account for 95% of the company's distribution revenues. Although the company strives to renew its agreements with its distributors before they expire, a service disruption caused by a delay in securing a renewal, as well as a failure to secure a regeneration or a renewal on less favorable terms, could have a material adverse impact on the company's financials and cash flows.
  • Currency Fluctuation Risk: DISCA is active in several international countries, and some of its transactions are conducted in foreign currencies. As a result of conducting business and investing in other currencies, it is subject to foreign currency risk.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DISCA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

DISCA's stock price has surged 30.42% in the past month and is currently trading in the lower-band of its 52-week range of USD 21.66 to USD 78.14. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 72.69, indicating an overbought zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 26.88.

Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 30.20, up 0.57%, as of January 10, 2022, at 8:00 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.