Is Discovery Communications Poised For Double-Digit Revenue Growth?

Discovery Communications Inc. DISCA seems poised for double-digit revenue growth in the U.S. in the second quarter, driven by continued robust advertising trends, according to BofA Securities.

The Discovery Communications Analyst: Jessica Reif Ehrlich upgraded the rating for Discovery Communications from Underperform to Neutral, while raising the price target from $35 to $40.

The Discovery Communications Thesis: The company is likely to generate “healthier and more sustainable OIBDA” in the longer term, with increased near-term investment in Direct-to-Consumer (DTC), Reif Ehrlich said in the upgrade note.

Key performance indicators at Discovery+ “indicate signs of more attractive customer lifetime values than initially expected,” she added.

While Discovery+ already generates in-line or higher average revenue per user than the company’s Pay-TV business, the rollout of Discovery+ in more regions presents “an attractive opportunity for incremental growth from both an APRU and penetration,” the analyst pointed out.

However, Reif Ehrlich expects the stock to remain rangebound due to “cannibalization headwinds to DISCA’s linear business,” investment in DTC continuing to be high and “a potential inflection in pay-tv subscriber trends.”

DISCA Price Action: Shares of Discovery Communications had risen by 1.39% to $37.86 at the time of publication Thursday afternoon.

(Courtesy: The New York Public Library)