Four Intriguing Media Companies

Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Numerous media companies are scheduled to release June-quarter earnings in late July and early August. These are stocks that have soared, in many instances, since the beginning of 2013. When reviewing the earnings, take a look at advertising sales trends, as well as the viewership ratings of owned networks or station groups.

CBS gave investors an early indication of how ad demand may have been, and what will be reported. Its ad sales were suggested to have climbed about 8% year over year, essentially in line with the company's outlook of a high-single-digit to low-double-digit range. The companies mentioned here include some cable network owners that are grabbing share of the television audience away from the likes of traditional broadcast networks.

Speaking of CBS, NBC, ABC, and FOX, since the end of the first quarter there have been several developments in terms of ownership consolidation, a factor that helps lift profitability in the industry. Namely, newspaper giants Gannett and Tribune (privately owned) have inked deals to purchase station assets.

Station purchases to assist revenues

The 2012 and early-2013 acquisitions of new stations by Sinclair Broadcast Group (NASDAQ: SBGI) will probably allow the owner of around 90 such properties to deliver substantially improved advertising sales. It had, in fact, forecasted broadcast revenues to increase 28% year over year. On a same-station basis, that metric might well be reported to have risen 5% to 6% (for more on this topic see my earlier blog, "Why Station Owners Have Positive Momentum").

Growing pains may cause weakness though in Sinclair's share earnings. As is often true with acquisitions, initial costs will probably hamper the profit result, as programming and production expenses rise. Accordingly, and based on management's guidance, share net for the June quarter will probably be about $0.18, down from $0.37 last year.

Fortunately, for the company, next year should represent a profit recovery, thanks partly to the fact that it is a midterm election year, and campaign advertising provides a solid boost to results. Investors should hold shares of the cash-flow heavy company for its consolidation potential and dividend.

Ad sales and affiliate fee gains

One of my favorite cable network owners, Scripps Networks Interactive (NYSE: SNI) is putting together a nice year, and its stock has rallied to show for it. March-quarter earnings climbed to $0.77, from $0.72 in the prior year. Moreover, the pace of earnings expansion is poised to accelerate.

Certainly, Scripps is taking the steps I like to see in a growing media company, spending to improve its programming content, thus driving up viewership ratings. Related outlays cut into profits earlier this year, but should subside enough to support even better earnings growth.

The generation of double-digit increases in advertising sales and affiliate fee revenues ought to propel results higher. Its numerous networks, including HGTV, The Food Network, and Travel Channel, ought to continue to gain popularity. Plus, its Amazon digital distribution agreement is allowing for jumps in fees. If management's earlier guidance is maintained, Scripps might well be on pace for a better-than-10% share-net advance this year.

Scripps shares are a good investment for growth investors interested in gaining exposure to the entertainment landscape.

Taking the world by storm

A cable network owner poised for robust earnings growth this year is Discovery Communications (NASDAQ: DISCA). The positive outlook is attributable mostly to global markets, including Western Europe where ad sales are climbing thanks to "free" distribution regulations, and in Latin America, where Discovery is realizing fee increases, owing to subscriber gains in Brazil and Mexico. Like Scripps, too, it is benefiting from an Amazon digital deal.

Discovery likely earned about $0.90 a share in the June quarter, as compared with $0.76 in 2012. Investments in apparently edgy programming appear to be coming to fruition, as evidenced by rising ratings. Cash is also being utilized for share repurchases, adding further near-term earnings accretion.

I like Discovery shares for their positive momentum. They are trading at a forward P/E of 20, based on earnings estimates of $3.35 per share and $4.25 per share in 2013 and 2014, respectively.

Capturing U.S. audiences

I overviewed AMC Networks (NASDAQ: AMCX) in a recent posting that highlighted its primetime ratings increase thanks to shows like Mad Men, as well as the likelihood of new programs performing well. Of the four companies mentioned here, it is exhibiting, in all probability, the highest-percentage increase in revenue growth from its networks.

Second-quarter share earnings were probably about $0.79, versus $0.58 last year, in light of the positive factors fueling ad revenue gains and, to a lesser extent, subscription sales.

AMC is continually boosting its spending on original programming, and says that such outlays usually occur six to nine months in advance of a program's airing. The stock is favorable as a growth investment with the company in its current stage. The P/E is 17.8 given earnings estimates of $3.30 and $3.85 per share for 2013 and 2014, respectively.


Watch media earnings reports for the direction of the industry. Sinclair provides a good gauge of where advertising spending is going, with the auto industry being the main ad category. By earnings release date, the four are as follows: Sinclair, August 7; Scripps, August 8; Discovery, July 30; AMC, August 8.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends AMC Networks and Scripps Networks Interactive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus