Discovery: Safest Buy In The Communication Services Industry

Summary

• Discovery's above industry margins, paired with their strong cash flows, and low valuation multiples present possibly the safest buy of the media producers' industry.
• The stock is currently trading at a discount after decreasing more than 30% since the start of February due to concerns regarding the coronavirus impact and the cord-cutting trend.
• While the largest media producers are fighting to come out with the next big hit, which is uncertain and costly, Discovery plays a different game, producing traditional non-fiction content.

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Discovery (DISCA) offers a very safe and attractive buy at current levels. It is a company that has been hit too hard because of the coronavirus sell-off, and that the market is not seeing the big picture. This company earned above $11 billion in total revenue in 2019, the maximum it has ever earned, and their free cash flow increased by 28%, meaning that they have the best FCF yield of the media giants. DISCA also enjoys the highest EBITDA margins of the industry, and above industry ROE and ROA. Not only that, but they are trading at low multiples relative to their own historical valuations, and to their closest competitors. All in all, Discovery, Inc. is a very stable company that is currently trading below its intrinsic value, has a potential upside of roughly 40%, and represents the safest buy within the Communication Services industry.

Background

Discovery, Inc. is part of the Communication Services Industry, and the Entertainment sector. They own and operate television networks in 220 countries and 50 languages. "Discovery Channel", "Discovery Kids", "Animal Planet", "Discovery Home & Health", "The Oprah Winfrey Network", "Travel Channel", and "Eurosport" are some of the various networks owned by this company. Their library has more than 60,000 hours, two times the size of Netflix, Inc (NASDAQ: NFLX), and they produce over 8,000 hours of content per year.

Source: TIKR

DISCA has plummeted by more than 30% since the start of February, mainly due to the coronavirus sell-off, but also because of concerns regarding advertising revenue, and the cord-cutting trend

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.