Scripps Networks: Lifestyle and Media

12/24/2015 7:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured value idea is a lifestyle media company formed in 2008, when E. W. Scripps Co. spun-off its cable television division as a publicly traded company, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Since launching HGTV in 1994, Scripps Networks (SNI) diversified into lifestyle media, developing relevant content for television, Internet, satellite radio, books, magazines, and on emerging media platforms for electronic devices.

In addition to HGTV, the company’s lifestyle media brands include Food Network, DIY Network, Cooking Channel, Travel Channel, and Great American Country. Scripps is headquartered in Knoxville, Tennessee.

Scripps’ lifestyle media has also created Web sites associated with its television brands and Internet-based businesses that serve the food, home, and travel industries.

New program content and an expanded international presence are fueling rapid advertising revenue growth, while strong cost management is aiding profits.

All the company’s networks, except the Travel Channel, are delivering solid revenue gains. A recent independent market study revealed that four of the company’s six cable channels ranked in the top-10 networks for effective advertising.

The company’s lifestyle-oriented channels are available in the UK, other European markets, the Middle East, Africa, and Asia-Pacific. Scripps expanded into Eastern Europe with the purchase of Polish broadcaster TVN for $1.8 billion.

Scripps’ stock dropped almost 30% during the first nine months of 2015 and has only partially recovered since the beginning of October. The decline is unwarranted and offers an excellent buying opportunity.

The current p/e ratio of 13.7 is low compared to SNI’s 10-year historical average p/e of 17.7. Sales will likely increase 10% and EPS will rise 18% during the next 12-month period. The current quarterly dividend provides a decent 1.6% yield.

I expect SNI to advance 50% and reach my minimum sell price target of $85.54 within two years.

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