- Wells Fargo (NYSE:WFC) has initiated coverage of Discovery Communications (NASDAQ:DISCA) at Market Perform, noting a confusing story and recent chatter about a merger with Scripps Networks Interactive (SNI +3.6%) that the firm says doesn't make much sense.
- Aside from a merger premium, fundamentals at Discovery are "just okay," writes Marci Ryvicker and her team.
- While domestic ad growth is fine ("nothing special"), she writes "We worry a little bit about domestic affiliate fee growth. DISCA's domestic cable nets are mature - both in terms of margin (58% on avg.) and distribution. Unlike many of its peers, however, DISCA is not in a lot of the mainstream streaming bundles; instead choosing to focus on a non-sports package which has yet to launch, price, etc."
- The company is one of the most exposed to continuous viewership declines, Ryvicker says, and she doesn't see a clear path to digital monetization. Meanwhile, heavy international exposure hasn't helped the stock due to low EBITDA margins.
- Wells has a $28 price target, just 3% upside from today's price.
- The firm also launched Scripps Networks at Market Perform with a price target of $82, implying 2.9% upside from today's higher price.
- Now read: Individual Stocks Are Still Lucrative - Cramer's Mad Money (7/19/17)
Original article