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Why Discovery Communications’ Stock Gained 10% in April

By Demitri Kalogeropoulos - Updated May 7, 2018 at 11:42AM

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Investors are cautiously optimistic heading into the TV giant's first-quarter report this week.

What happened

Television network Discovery (DISCK) rose 10% last month, compared to a slight increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

DISCA Chart

DISCA data by YCharts.

The boost only erased a small portion of investors' recent losses on this stock, which has underperformed the market by a wide margin over the past one-year and five-year periods.

Woman watching TV

Image source: Getty Images.

So what

April's rally came as Wall Street gained confidence in the business ahead of Discovery's upcoming merger with rival Scripps Networks (SNI). That acquisition has raised Discovery's debt needs, but strong cash flow might allow management to quickly resume aggressive stock buybacks, perhaps as early as late 2018, according to an analyst at Deutsche Bank who upgraded the stock in late April .

Now what

Temporary swings aside, Discovery's long-term results will depend on its ability to keep advertising revenue rising in its international markets while it strengthens its direct-to-consumer distribution platform.

Both of these metrics should be aided by the addition of Scripps Networks, but a lot can go wrong in a $15 billion acquisition like this. That's why investors will be listening for updates about the merger, in addition to the latest ratings trends, when Discovery reports first-quarter earnings results on May 8.

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Stocks Mentioned

Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.
DISCK
Scripps Networks Interactive, Inc. Stock Quote
Scripps Networks Interactive, Inc.
SNI

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