Discovery Communications Shares Finally Trading In Line With Growth; Loop Drops From Buy To Hold

Loop Capital has downgraded Discovery Communications Inc. DISCA to Hold from Buy, saying the stock now prices in the growth prospects and potential dividend effects. The stock is trading a mere 4.7 percent shy of its target of $31.00.

“While it has not happened yet, we also believe the stock price today reflects the creation of a modest $0.30/sh dividend,” analyst David Miller wrote in a note.

Miller also noted that investors are undervaluing Discovery’s scale and scope within the international business as it reaches over 883 million households in 178 countries.

As of fourth quarter, Discovery’s International Networks accounts for 46.8 percent of revenues and 35 percent of adjusted EBITDA, making it the most “international” media company amongst all large-cap peers.

Related Link: What is a Best of Breed Stock?

Miller also expects Discovery to initiate a dividend of $0.30 a share, given the slowing growth rate, an improvement in 2016 free cash flow (FCF) of 9.5 percent and $1.36 billion plus in FCF expected in 2017.

At last check, shares of Discovery fell 1.01 percent to $29.32.