Pivotal Research Upgrades Discovery Communications (DISCA) to Buy

Pivotal Research upgraded Discovery Communications (NASDAQ: DISCA) from Hold to Buy with a price target of $39.00. The stock declined following Q3 results.

Analyst Brian Wieser said, "Weak currency trends shaved $100mm off revenues and drove reduced guidance. Unfortunately, constant currency “organic growth” trends have not been headline figures for Discovery as they are for the agency holding companies, which are comparably global by nature. Profit margins were reasonably positive, with domestic adjusted OIBDA down as a percentage of revenues as we expected (largely due to the changing revenue mix towards the lower margin European assets) but up vs. our expectations. Domestic margins were up year over year, and above our expectations."

"The bigger positive on 3Q14 was an indication that the company expects tax rates below 30% by 2017. This contrasts with reported taxes of 38% last year, and is a faster decline than we previously expected. The change in assumptions alone drives 65 cents per share of value for every percentage point of taxes saved, by our estimate, and helps support our $39 price target. Given the gap with this figure and yesterday’s end-of-day price, we upgrade Discovery from Hold to Buy," he added.

For an analyst ratings summary and ratings history on Discovery Communications click here. For more ratings news on Discovery Communications click here.

Shares of Discovery Communications closed at $33.31 yesterday.

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