Citigroup analyst Jason Bazinet upgraded Discovery Communications (DISCA) - Get Discovery, Inc. Class A Report to "buy" from "neutral" Tuesday, calling Monday's Discovery stock selloff "a tad punitive."
Bazinet said Discovery's deal with Scripps Networks (SNI) is "not that bad of a deal." Although the deal likely won't solve Discovery's core strategic issues, the 8% decline in Discovery's stock price might not have been warranted, according to Bazinet.
Citi sees two possible scenarios for the Discovery-Scripps deal over the next 18 months. After the transaction closes, risk arbitrage pressure will abate. Cash flow that is used to retire debt will accrue to the equity holders once Discovery transitions to trade on enterprise value-Ebitda.
Bazinet assigned Discovery a price target of $29, down from his previous $30 estimate and implying about a 18% upside for the stock. Discovery shares traded down after the market open.
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