Analyst Slaps "Buy" On Scripps

Says Carriage Renewals Could Boost Stock

Mike Farrell -- Multichannel News, 6/22/2009 10:44:25 AM

Collins Stewart media analyst Tom Eagan initiated coverage of Scripps Networks Interactive Monday with a "buy" rating and a $34 per share price target, adding that upcoming carriage renewals for its top two networks - HGTV and Food Network - should help the company beat analysts' consensus estimates.
In a research note Monday, Eagan wrote that carriage renewals on 75% of Food's subscriber base and 50% of HGTV's expire on Dec. 30. The analyst expects "significant fee gains" for Food, given that year-over-year 2009 household ratings at the network have risen 18%. Eagan estimated Food is currently receiving about 8.5 cents per subscriber per month in carriage fees and could grow that to 12 cents.
At HGTV, Eagan estimates lower, but still low-teen percentage growth out of that network's renewals. Eagan expects HGTV's average fee to increase from 15.8 cents per month per subscriber to 17.5 cents, helping to increase the networks revenue by 7% in 2010.
Together with low single-digit gains in Interactive Services, Eagan expects the renewals to translate into 8% total revenue growth and 11% cash flow growth for the company.
Coupled with the company's plans to sell its uSwitch British online energy pricing unit and planned stock buybacks, SNI stock should surge this year. The shares are currently trading at $28.06 each (up 20 cents in early trading Monday), so Eagan's target price would represent a 21% rise.
Another catalyst for the stock is speculation that SNI could be sold. While the company has made no overtures toward a sale, Eagan wrote that with a mix of strong programming assets, SNI could be an attractive target of companies like Time Warner Inc, NBC Universal and DirecTV.