Discovery Stock Sinks on Company’s First Investor Day

Share price is battling back after CEO David Zaslav promises three years of increasing EPS growth rate

Discovery Communications stock price plummeted immediately following the opening trading bell Tuesday — when the company scheduled its first investor day for shareholders and analysts.

DISCA closed at $27.78 per share on Monday; it immediately slid all the way to $25.73 on Tuesday — a 7.4 percent fall. Since then, the stock has battled back up to the low $27 range, but still down. That doesn’t seem to faze David Zaslav — at least, not publicly.

“Discovery Communications is like no other media company in the world, with an average of 10 channels across more than 220 markets and we are well positioned for near- and long-term growth,” the president and chief executive officer said on Tuesday.

“The company stands out in the marketplace due to our efficient global content model; unrivaled international infrastructure run by local teams; and a strong growth position in the U.S.,” he said. “We are confident in the long-term outlook for our business and foresee continued growth in the years ahead, which we expect will produce significant free cash flow and value for shareholders.”

Investors might have been spooked by Zaslav’s admission that the scripted market is getting overlycrowded and too expensive to play in. The CEO also mentioned that Netflix deals probably were “not rational,” and indicated that “skinny” TV bundles are a very real thing that will be happening.

To that last point, however, the top exec swore that Discovery is well-positioned to handle the pending trend. Only time will tell if the company can weather the storm as well as Zaslav wants his investors to believe.

For now, here is the Discovery stock’s trajectory today, up to the time of this writing.

DISCA

During the morning conference, Zaslav promised that the company would reach 3 billion cumulative worldwide subscribers by the end of the year. He and CFO Andrew Warren forecast low double-digit constant currency adjusted EPS Compound Annual Growth Rate (CAGR) from 2015 to 2018. They foresee the same for free cash flow CAGR.

Finally, Zaslav highlighted what the company calls its five key differentiators for growth potential:
1) The company’s unique portfolio of assets
2) Ownership/control of a growing and diverse portfolio of content and IP that uniquely positions Discovery for the changing media landscape
3) A leading international distribution platform that will continue to benefit from positive global trends
4) A cost-flexible, stable U.S. business that yields continued free cash flow growth
5) A strong financial outlook, highlighted by, for the first time, three-year guidance metrics

On more immediate results, Warren told shareholders and analysts: “Third quarter results are on track, highlighted by strong U.S. advertising growth. We are pleased that we are delivering on our 2015 commitments and are confident that we are well positioned to continue to grow adjusted EPS in the long-term. In addition, our model generates significant free cash flow, and we expect to have approximately $10 billion in available capital over the next five years.”


Comments