On May 3, Discovery (DISCA) stock fell 4 percent despite there being no company-specific news or analyst downgrades. The stock has lost 17 percent over the last month but has gained 20 percent YTD. What’s the forecast for DISCA stock? Will it recover or fall more in 2021?
Discovery stock has been trending downward after the media company reported disappointing first-quarter earnings results on April 28. In the first quarter, Discovery reported an EPS of $0.21 compared to $0.55 in the first quarter of 2020. The EPS missed analysts’ average estimate of $0.33. Discovery generated sales of $2.79 billion in the first quarter, which was 4 percent more than it did in the first quarter of 2020. The company reported 13 million paying direct-to-consumer customers globally as of March 2021.
DISCA stock has bottomed out.
In my view, we are done with the sell-off and Discovery stock might recover now. The stock is down 54 percent from its 52-week high of $78.14 on March 19. DISCA stock fell significantly after Bill Hwang’s Archegos Capital Management's holdings sold. The highly levered family office run by Hwang didn't meet its margin call.
DISCA stock will recover.
The future of DISCA stock looks very bright for patient investors. The stock is trading at a cheap price compared to its fundamentals. The analysts polled by TIKR expect the company’s revenue to rise 13 percent and 5 percent, respectively, in 2021 and 2022. Meanwhile, DISCA’s revenues fell by 4 percent in 2020.
Discovery’s stock price prediction
According to Market Beat, analysts' average target price is $39.40 for Discovery stock, which is 9 percent above its current price. Among the 19 analysts tracking Discovery, seven recommend a buy, 11 recommend a hold, and one recommends a sell. Their highest target price of $67 is 85 percent above the stock's current price, while their lowest target of $20 is 45 percent below.
Last week, several analysts upgraded Discovery stock. Wells Fargo upgraded the stock to overweight from equal weight with a target price of $46. UBS upgraded the stock from sell to neutral with a target price of $38, while Macquarie upgraded the stock from underperform to neutral with a target price of $40.
Should you buy Discovery or VIAC stock?
Discovery trades at an NTM PE multiple of 13.2x, which looks expensive compared to other media stocks. ViacomCBS (VIAC) and AMC Networks (AMCX) are trading at NTM PE multiples of 9.8x and 6.2x, respectively.
Analysts' average target price for Discovery of $39.40 implies a 9 percent upside, while the target price for VIAC of $47.08 implies a 19 percent upside.
Discovery is a good streaming stock.
Discovery has a differentiated offering from its streaming TV competitors with its extensive library of educational and non-fiction content. The company is witnessing accelerating momentum with its streaming segment. Currently, Discovery has 15 million paying direct-to-consumer customers compared to 11 million in late February. The company has plenty of liquidity to expand its new streaming asset due to its significant free cash flow generation. As a result, I think that Discovery stock is a good streaming stock.