With shares of Discover Communications (NASDAQ:DISCA) trading around $87, is DISCA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock's MovementDiscovery Communications operates as a non-fiction media company worldwide. It operates through three segments: U.S. Networks, International Networks, and Education. The company provides original and purchased content across various distribution platforms. Its content covers genres, including science, exploration, survival, natural history, technology, docu-series, anthropology, paleontology, history, space, archaeology, health and wellness, engineering, adventure, lifestyles, forensics, civilizations, current events, and kids programming. The company owns and operates nine national television networks in the United States, including Discovery Channel, TLC, Animal Planet, Science Channel, Investigation Discovery, Military Channel, Planet Green, Discovery Fit & Health, and Velocity.
Discovery Communications reported financial results for the third quarter ended September 30, 2013. David Zaslav, Discovery's president and chief executive officer, said, "Discovery's strong third quarter results once again demonstrate the breadth and depth of our brands and the myriad of opportunities across our global distribution platform. We are translating the consistent viewership gains we are delivering globally into strong advertising growth both domestically and internationally, while at the same time further leveraging our unique distribution footprint by capitalizing on the pay television evolution in many of our markets worldwide"
T = Technicals on the Stock Chart are StrongDiscover Communications stock has been exploding to the upside in the last several years. The stock has made new all-time highs just about every year and looks to be headed there this year as well. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Discover Communications is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Discover Communications options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Discover Communications Options | 24.49% | 16% | 14% |
What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| November Options | Flat | Average |
| December Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let's take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-QuarterRising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Discover Communications' stock. What do the last four quarterly-earnings and revenue-growth (Y-O-Y) figures for Discover Communications look like and, more importantly, how did the markets like these numbers?
| 2013 Q3 | 2013 Q2 | 2013 Q1 | 2012 Q4 | |
| Earnings Growth (Y-O-Y) | 29.09% | 7.89% | 10.53% | -28.84% |
| Revenue Growth (Y-O-Y) | 27.79% | 30.28% | 6.54% | 8.50% |
| Earnings Reaction | 5.33% | -4.03% | -1.45% | -0.95% |
Discover Communications has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Discover Communications's recent earnings announcements.
P = Weak Relative Performance Versus Peers and SectorHow has Discover Communications stock done relative to its peers, Twenty-First Century Fox (NASDAQ:FOXA), Time Warner (NYSE:TWX), CBS (NYSE:CBS), and sector?
| Discover Communications | Twenty-First Century Fox | Time Warner | CBS | Sector | |
| Year-to-Date Return | 38.55% | 54.19% | 43.30% | 57.21% | 49.31% |
Discover Communications has been a poor relative performer, year-to-date.
ConclusionDiscover Communications operates as a non-fiction media company worldwide. The company recently released earning that left investors happy. The stock has been trending higher over the last couple of years and is currently trading at highs for the year.Earnings and revenue figures have been steadily growing so investors have been very satisfied. Relative to its peers and sector, Discover Communications has been an under-performer leader, year-to-date. Look for Discover Communications to continue to OUTPERFORM.
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