Discovery: Organic Sales Growing Despite Secular Pressures

Gary Mishuris of Silver Ring Value Partners presented his in-depth investment thesis on Discovery Communications (US: DISCK) at Wide-Moat Investing Summit 2019.

Thesis Summary:

Discovery Communications is one of the largest global cable network companies focused on non-fiction content. Its competitive advantages are strong brands, a valuable library of content, and powerful global distribution. Many investors have a behavioral bias when a stock goes up significantly, thinking they have “missed it” or that “the easy money has been made.” In fact, when the stock is going up because of fundamental business improvement or business risks being eliminated, frequently it is the hard money that has been made. This might be the case with Discovery, which Gary presented at Best Ideas 2018. At the time, there were three main risks to the thesis: 1) integration risk from the then-recent Scripps Networks Interactive acquisition; 2) high financial leverage; and 3) secular risk from the erosion of the traditional TV ecosystem.

Fast-forward eighteen months, and despite the stock being up, it is now arguably a better investment than it was then. The first two risks have been eliminated, and while the third remains, the company has been posting positive organic sales growth despite the secular pressures everyone seems worried about. At ~8x EPS and FCF, the stock is cheap and discounts a shrinking business, something that neither Gary’s fundamental analysis nor the company’s recent results support. The shares recently traded at ~60% of Gary’s “base case” intrinsic value estimate.

Replay Gary’s session on Discovery at Best Ideas 2018.

Replay this LIVE session:

slide presentation audio recording

About the instructor:

Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business. Prior to founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset Management since 2011, where he was the Lead Portfolio Manager of the US Focused Value strategy. From 2004 through 2010, Mr. Mishuris was a Vice President at Evergreen Investments (later part of Wells Capital Management) where he started as an Equity Analyst and assumed roles with increasing responsibilities, including serving as the co-PM of the Large Cap Value strategy between 2007 and 2010. He began his career in 2001 at Fidelity as an Equity Research Associate. Mr. Mishuris received a S.B. in Computer Science and a S.B. in Economics from the Massachusetts Institute of Technology (MIT).