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After a couple of quarters where Discovery Communications (DISCK) did not quite meet the high expectations the company has rightly created for itself, third quarter 2013 results hit the mark. Domestic advertising and affiliate growth were ahead of expectations. International growth was a little light but clear indications that the company's acquisitions in Europe are working well was evident. Management confirmed 2013 guidance despite a one-time hit to expenses in the fourth quarter. Commentary surrounding 2014 was positive amid some concern that growth was set to slow.

DISCK earnings growth will be supplemented by its very healthy balance sheet and high free cash flow. Share purchases continue at a high pace despite the capital the company committed to its European acquisitions. It seems as though 2014 will be spent consolidating recent acquisitions, freeing 100% of free cash flow to be dedicated share repurchase.

The key risk to renewed positive sentiment on DISCK shares (up 5% in a flat market after the report) is any weakness in ratings for its domestic TV networks. Ratings can be volatile across large portfolio of networks like those owned by Discovery (Discovery Channel, TLC, Animal Planet, ID, OWN, and many more).

DISCK shares have lagged the market and peer media companies since early March. This was partially due to the last two quarters not meeting sky high expectations. With the tock going sideways and growth continuing, the premium multiple assigned DISCK shares had a chance to moderate. The strong third quarter and promising outlook suggests the shares can again lead the industry, reflecting the company's superior growth profile. A move over $100 is possible with earnings heading to $4 next year and $5 in 2015.

Disclosure: DISCK is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. DISCK is a new long position in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, communications, leisure, and related technologies. Steve Birenberg is the portfolio manager of Entermedia, has personal monies invested in the funds, and controls Entermedia's General Partners.

Source: Discovery Finds Love After Strong Quarter