Discovery Communications Inc Stock Buy Recommendation Reiterated (DISCA)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Discovery Communications (Nasdaq: DISCA) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

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Highlights from the ratings report include:
  • DISCA's revenue growth has slightly outpaced the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 6.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Even though the current debt-to-equity ratio is 1.03, it is still below the industry average, suggesting that this level of debt is acceptable within the Media industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.29 is very high and demonstrates very strong liquidity.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 59.11% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • DISCOVERY COMMUNICATIONS INC has improved earnings per share by 10.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DISCOVERY COMMUNICATIONS INC reported lower earnings of $2.51 versus $2.82 in the prior year. This year, the market expects an improvement in earnings ($6.72 versus $2.51).
  • The gross profit margin for DISCOVERY COMMUNICATIONS INC is currently very high, coming in at 90.40%. Regardless of DISCA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.98% trails the industry average.

Discovery Communications, Inc. operates as a non fiction media company worldwide. It operates through three segments: U.S. Networks, International Networks, and Education. The company provides original and purchased content across various distribution platforms. Discovery has a market cap of $11.7 billion and is part of the services sector and media industry. The company has a P/E ratio of 31.00, above the S&P 500 P/E ratio of 18.00. Shares are up 25.9% year to date as of the close of trading on Friday.

You can view the full Discovery Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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