DISC.A - Embedded Expectations Analysis - 2019 05 08
Discovery, Inc. (DISC.A:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Earnings with an 11.6x Uniform P/E, implying bearish expectations for the firm. While management concerns about demand, digital products, and leverage ratios suggest the potential for near-term headwinds, the firm's strong international footprint and unique set of assets suggest longer-term upside remains warranted.Specifically, management may be exaggerating the demand for natural history and factual OTT offerings, particularly among younger viewers, the quality and breadth of their programming offerings, and the success of their golf, cycling, and BBC content. Furthermore, they may lack confidence in the positioning and potential of their digital products, as well as their ability to expand their direct-to-consumer services, build a food content ecosystem, and appeal to younger audiences. Also, they may lack confidence in their ability to maintain their leverage ratios, execute their share buyback program, and sustain affiliate and digital product ad growth.
That said, even with near-term headwinds suggested by management's pessimism, long-term outperformance remains warranted at current valuations if DISC.A is able to just maintain profitability near recent averages.
Discovery, through its subsidiaries, is a media company that provides content across distribution platforms, including pay-television, free-to-air and broadcast television, and direct-to-consumer subscription products. The company's portfolio of networks includes nonfiction television brands such as Discovery Channel, HGTV, Food Network, TLC, Animal Planet, Science Channel, and MotorTrend . The company's portfolio includes Eurosport, a sports entertainment provider. The company classifies its operations in two segments: U.S. Networks, consisting of domestic television networks and digital content services, and International Networks, consisting of international television networks and digital content services.
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