I am negative on Viacom, Inc. (NASDAQ:VIAB) for a two reasons. First, it has a substantial movie business, which are basically binary outcomes of hits or misses. Second, Viacom saw ratings for its Nickelodeon channel fall last year, as viewers turned to old episodes of the show available on Netflix, Inc. (NASDAQ:NFLX). The new deal with Amazon.com, Inc. (NASDAQ:AMZN) does not change the fact that digital distribution deals will not be as lucrative as advertising revenues from traditional channels. One bright spot for Viacom shareholders is the continued return of capital through share repurchases. Viacom spent about $700 million buying back approximately 11.7 million shares, and still has $2.6 billion remaining from its share repurchase authorization as at end of April 2013.
Like Discovery Communications, Scripps Networks Interactive, Inc. (NYSE:SNI) has its own unique niches. While Discovery Communications focuses on content related to nature, Scripps Networks Interactive, Inc. (NYSE:SNI) has a strong lifestyle emphasis, with channels such as Food Network and Travel Channel. Like its peers, Scripps Networks Interactive, Inc. (NYSE:SNI) generates substantial free cash flows and capital allocation is a big driver of value. I am concerned if its internal expansion strategy through M&A and potential acquisition of Tribune’s 31.3% stake in Food Network will divert cash away from its current share repurchases. Scripps Networks Interactive, Inc. (NYSE:SNI) has $750 million remaining from its current share buyback authorization as at the end of the first quarter of fiscal 2013.
Conclusion
I like Discovery Communications for its focus on nonfiction media content, strong brands and diversified revenue streams. However, I only invest in good companies at attractive valuations. While it does not pay a dividend like its peers, it has a disciplined capital return policy, with about $1.4 billion remaining from its current share repurchase authorization as at end of April 2013. At 1.0 times PEG, valuations are reasonable, but the margin of safety is insufficient for me. Investors should consider accumulating this stock, when the stock price falls below 1.0 times PEG.
The article Rediscover this Leader in Nonfiction Media Content originally appeared on Fool.com and is written by Mark Lin.
Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Scripps Networks Interactive. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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