This media company beat EPS forecasts by $0.08 last quarter, and analysts predict double-digit growth over the next five years.
Scripps Networks (SNI)
From Cabot Benjamin Graham Value Investor
Scripps Networks (SNI; Max Buy Price 65.78) is a lifestyle media company formed in 2008 when E. W. Scripps Co. spun off its cable television division as a publicly traded company. After launching HGTV in 1994, Scripps Networks diversified into lifestyle media, developing relevant content for television, the Internet, satellite radio, books and 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 websites associated with its television brands and internet-based businesses that serve the food, home and travel industries. The company’s lifestyle-oriented channels are available in the United Kingdom, other European markets, the Middle East, Africa and Asia-Pacific.
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 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. In that survey, Food and HGTV were ranked first and second.
Sales and EPS surged 18% during the 12 months ended September 30, 2016. Higher ratings for many of Scripps’ shows led to a substantial gain in advertising revenue. International revenue bolstered results, helped by the inclusion of recently acquired Polish TVN network. Management believes the company’s extraordinary success will continue.
The current price-to-earnings ratio of 12.4 is very low compared to SNI’s 10-year historical average P/E of 17.4. Sales and EPS will rise 5% during the next 12-month period. The current quarterly dividend provides a decent yield. The addition of TVN will likely enable Scripps to beat estimates and help send SNI considerably higher from the current price. I expect SNI to advance 39% and reach my Min Sell Price of 88.72 within one to two years. Buy at 65.78 or below.
J. Royden Ward, Cabot Benjamin Graham Value Investor, www.cabot.net 978-745-5532, November 3, 2016