Morgan Stanley Comments On Scripps Networks Interactive; Reiterates OW Rating

Morgan Stanley reiterates its OW rating on Scripps Networks Interactive SNI, which has lagged Media peers by roughly 15% YTD. Morgan Stanley expects that accelerating ad growth in 1Q and continued scatter momentum in 2Q should help reverse some of this underperformance. Further upside to consensus estimates exist if the company should opt to utilize its excess financial capacity in accretive ways. Morgan Stanley sees SNI's cable networks delivering roughly 13% advertising growth in 2011, at the high end of peers. Channel checks indicate that national scatter trends remained strong through 1Q, and that scatter premiums in 2Q remain at or above 1Q levels. Ratings improved sequentially in 1Q. Importantly, ratings generally improved during the quarter, and comps ease from here. Potential near-term catalysts include: deployment of low return cash on balance sheet, a more optimized capital structure, and the emergence of Tribune from bankruptcy, a process now in its 29th month, creating opportunity for SNI to repurchase the Food/Cooking minority stake from Tribune. Morgan Stanley has a $60 PT and Overweight rating on SNI SNI closed Monday at $50.87