How Will Scripps Networks (SNI) Stock React To Takeover Talk?

NEW YORK (TheStreet) -- Shares of Scripps Networks Interactive (SNI) are up 0.24% to $80.53, as investors are pricing the owner of HGTV and the Food Network as if it's already in takeover talks, Bloomberg reports.

The elevated stock price reflects bets that an offer could come soon, whether from Discovery Communications (DISCA) , Viacom (VIA) or other television network operators, Bloomberg said.

The speculation intensified after 21st Century Fox (FOXA) made a bid for Time Warner (TWX) , which valued the owner of HBO and CNN at almost 12 times profit. While Fox's effort failed, Scripps is now trading at about the same valuation, Bloomberg noted.

 

Price may make an acquisition challenging, because Scripps probably wouldn't be willing to sell for less than $100 per share, said Wunderlich Securities.

The shares closed at about $80 yesterday, giving it a market value of $11 billion.

TheStreet Ratings team rates SCRIPPS NETWORKS INTERACTIVE as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate SCRIPPS NETWORKS INTERACTIVE (SNI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. 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, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.8%. Since the same quarter one year prior, revenues slightly increased by 6.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.76, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.75 is somewhat weak and could be cause for future problems.
  • The gross profit margin for SCRIPPS NETWORKS INTERACTIVE is currently very high, coming in at 73.14%. Regardless of SNI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SNI's net profit margin of 21.71% compares favorably to the industry average.
  • SCRIPPS NETWORKS INTERACTIVE reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, SCRIPPS NETWORKS INTERACTIVE reported lower earnings of $3.40 versus $4.46 in the prior year. This year, the market expects an improvement in earnings ($3.90 versus $3.40).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Media industry and the overall market, SCRIPPS NETWORKS INTERACTIVE's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SNI Ratings Report
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