Discovery Is Both A Short- And Long-Term Buy

Summary

• Discovery is the global leader in non-fiction media. It holds some of the best and broadest content in its large niche.
• It has a solid strategy of diversifying into new distribution channels and away from cable revenues.
• We think that the valuation discount is overdone and doesn't reflect the earnings potential of the company.
• We are particularly positive on the Scripps acquisition. We expect efficiency driven by the post-merger integration efforts to catalyze the shares in the near-term.
• We think that the risk-reward in Discovery shares is significantly skewed to the upside and that the share price will increase as the company grows its non-network exposure.

Investment Thesis

Discovery Inc. (DISCA) is the global leader in non-fiction media. It holds some of the best and broadest content in its large niche. It has a solid strategy of diversifying into new distribution channels and away from cable revenues. We think that the valuation discount is overdone and doesn't reflect the earnings potential of the company. We are particularly positive on the Scripps acquisition. We think that the risk-reward in Discovery shares is significantly skewed to the upside and that the share price will increase as the company grows its non-network exposure.

Broadest Portfolio of Non-Fiction Media

Discovery is a global leader in real life entertainment. It serves a large niche audience of superfans around the world with content that informs and entertains. The company delivers more than 8,000 hours of original content annually available in 220 countries and territories and in almost 50 languages.

Discovery’s portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, Motor Trend, Animal Planet, and Science Channel, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and home of the Olympic Games across Europe.

Broadening Distribution Channels And Diversifying Away From Cable

Cable TV is on its deathbed with more and more consumers cutting the cord. It is both more expensive and less convenient. Today's consumers don't want to pay for a plethora of channels they don't watch. Neither do they want to sit through advertisements. TV ad revenue dependent cable networks need to adapt or die along with cable TV.

Discovery is firmly in the adapt camp. It is working hard to broaden its digital distribution channels and is currently available on YouTube, Hulu, and Sling. It is working on its own DTC offering

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in DISCA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.