Should I Buy ITV?

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LONDON -- I'm window shopping for shares again, and I'm feeling spoilt for choice. Should I pop ITV  (LSE: ITV  ) into my basket?

The ITV factor
I don't watch much telly these days, but I've been keeping a close eye on ITV for some time. This stock has been required viewing lately, posting strong profit and cash growth. Is it time I switched on to ITV?

ITV's loyal army of investors have been amply rewarded in recent years. This stock has doubled their money over the past five years, rising 100%, including a prime-time 50% increase in the past 12 months. I'm impressed, but I am also worried that I may have missed most of the fun.

Glory box
There was plenty of fun to be had in ITV's full-year results, published in February, which showed a 3% rise in external revenues to nearly 2.2 billion pounds, and a third successive year of annual profits growth. Adjusted profit before tax leapt 17% to 464 million pounds, while positive net cash shot up from 45 million pounds in 2011 to 206 million pounds. Management was so happy, it rewarded investors with a special dividend of 4 pence per share. Chief executive Adam Crozier was particularly happy, picking up 4 million pounds and pocketing 5 million pounds in shares. Still, at least he isn't being rewarded for failure. On his watch, ITV's market cap has risen from around 2 billion pounds to more than 5 billion pounds.

The price is right
Crozier is three years into a five-year transformation plan that aims to reduce ITV's dependence on flatlining advertising revenue. It now earns more than 1 billion pounds from other sources, up 12%. Its online, pay and interactive revenues rose 26%. The plan seems to have worked, with Crozier claiming ITV has "consistently grown our revenues, delivered double digit earnings growth and converted that earnings growth to cash to strengthen our financial position." Profits rose 157% to 520 million pounds in that time.

Towie-ing performance
I like companies that can successfully pioneer new earnings streams. Content is still king, and ITV has done well on that front, although investors can never rely on any TV station regularly bashing out hits such as Downton Abbey, X-Factor and The Only Way Is Essex. Forecast EPS growth looks steady, at 10% this year and 7% in 2014, but well below recent highs, which saw adjusted EPS rise 411% over the past three years. The yield is relatively low at 2.1%, although on a forecast 2.9% for this year. Covered 3.5 times, there is plenty of scope for dividend growth, while existing investors will still cherish the warm glow from the recent special payout.

Despite that recent severe price surge, ITV trades at a relatively modest 13.6 times earning. That's below the FTSE 100 average of 15, and cheaper than many of the stocks I've looked at lately. Two weeks ago, Goldman Sachs upped its ITV target price from 1.31 pounds to 1.54 pounds and maintained its "buy" recommendation. You can buy it today for around 1.26 pounds. I'm tempted.

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