Nomura Securities Maintains a 'Neutral' on Discovery (DISCA); Striking Gold with Netflix - 3Q Lumpy, Moving onto 4Q

Nomura Securities maintains a 'Neutral' on Discovery Communications (NASDAQ: DISCA) price target of $41.00.

Nomura analyst, Michael Nathanson, said, "Discovery reported 3Q11 EPS of $0.59 (vs. $0.55 est.) due to 15% EBITDA growth (vs. 10% est.). However, the upside was entirely due to an extra $66mn of profits booked from a new Netflix (Nasdaq; NFLX) deal. As this was not in our forecast, Discovery actually missed our EBITDA estimates by $46mn due almost entirely to higher costs including an incremental $24mn programming write-down. Despite the miss, the focus on the call was 4Q advertising pacings/margin recovery and Netflix."

"We now project DISCA CY11 total revenue growth of +12.5% driven by higher affiliate fee revenue growth from Netflix and an acceleration of ad revenue growth in 4Q (15% US organic growth). We are increasing our 4Q EBITDA growth to +18% (vs. +14% prev.) and EPS by $0.05 to $0.71. We are also raising our CY12 EPS by $0.02 to $2.92."

For more ratings news on Discovery Communications click here and for the rating history of Discovery Communications click here.

Shares of Discovery Communications closed at $42.27 yesterday.

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