The market has not yet fully appreciated Discovery Communications (DISCA) given its pricing power and the upcoming contract renewals for its content, making the stock an important holding in the investment strategies for James M. Landreth, Managing Director, Portfolio Manager and Research Analyst at North Capital, LLC.
“Given the fact that [DISCA is] going to be repricing pretty much 100% of their contracts over the next several years, maybe over the next five years, we feel that the market doesn’t appreciate the full extent of their pricing power. This is where we feel the stock is mispriced, that the repricing of these contracts is going to be meaningfully higher than what the Street anticipates,” Landreth said.
Discovery Communications is one of the largest providers of nonfiction contact predominantly to the cable TV industry with over 1.8 billion subscribers around the world, with some of its most famous channels being the Discovery Channel, the Learning Channel and Animal Planet, and Landreth says the stock should benefit as operators seek to maintain these channels in their line-up.
“The stock is trading at 20 times, so it’s probably an appropriate multiple. However, we think we will see better-than-expected earnings upside surprises over the next several years as they reprice these contracts. So it’s just another name we’re excited about in our portfolio,” Landreth said.
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