Crista Huff is a leading expert focused on both growth and income investing. In her latest Cabot Undervalued Stock Advisor, she looks at the prospects for two media plays.
Discovery Communications (DISCA) reported second quarter results that reflected big gains in U.S. and international ad revenue and improved operating results that were offset by higher restructuring and other charges associated with the acquisition of Scripps Networks.
The company continues to deliver robust free cash flow generation and is paying down debt ahead of schedule. Its networks currently capture a huge market share of women’s programming, including HGTV, Food Network, Animal Planet and the Oprah Winfrey Network.
Analysts are lowering their profit projections for this year, while next year’s consensus earnings estimate remains unchanged. The current expectation is that Discovery will achieve EPS growth of 26.3% in 2018 and 48.8% in 2019. There will invariably be additional changes to those estimates in the coming days as analysts rework their figures and publish new research reports. The 2019 P/E is very low at 7.2.
The company carries debt levels that are higher than I would prefer. However, I recommend that investors keep their shares and consider adding to their position, due to the high quality of the company’s entertainment franchise, very strong earnings growth and very low p/e ratio.
TiVo (TIVO), yielding 5.6%, is an entertainment technology company. TiVo creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences.
TiVo’s management believes that their stock’s share price is inappropriately low. As a result, management is in strategic discussions with entities that are considering buying TiVo’s product and/or IP licensing divisions, because a buyout would bring shareholders a much higher share price than the stock currently offers.
As of early August 2018, management has conveyed that the negotiating process is well under way. Investors should not be surprised if a final lucrative buyout offer is announced at any time between now and year end.
TIVO is an undervalued growth stock with a very attractive dividend yield.
With valuable patents, constant innovation in entertainment technology, and a tiny $1.7 billion market cap, TiVo is an easy and obvious takeover target for any number of media conglomerates that want to “own instead of rent” the technology that’s essential to their products and services.
