Media Entertainment Stocks

Scripps Networks Interactive Inc Valuation – February 2016 Update $SNI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Scripps Networks Interactive Inc (SNI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Scripps Networks Interactive, Inc. (SNI) is a developer of lifestyle-oriented content for linear and interactive video platforms, including television and the Internet brands. The Company manages its operations through its Lifestyle Media segment. Lifestyle Media includes its six national television networks, HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. HGTV focuses on decorating, interior design, home remodeling, landscape design and real estate topics. Food Network programming content includes food-related topics. Travel Channel is a travel multi-media brand. DIY Network provides entertaining and informational programming content. Cooking Channel programming focuses on food information and instructional cooking. Great American Country offers the country music experience, music performance specials, live concerts and country music videos.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SNI – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,828,631,588 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.31 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2084.48% Fail
6. Moderate PEmg Ratio PEmg < 20 15.98 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.44 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.31 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.51 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SNI value Chart February 2016

EPSmg $3.89
MG Growth Estimate 15.00%
MG Value $149.61
Opinion Undervalued
MG Value based on 3% Growth $56.35
MG Value based on 0% Growth $33.03
Market Implied Growth Rate 3.74%
Current Price $62.10
% of Intrinsic Value 41.51%

Scripps Networks Interactive Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, and the short dividend history.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.82 in 2011 to an estimated $3.89 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.74% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Scripps Networks Interactive Inc (SNI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

SNI Charts February 2016

Net Current Asset Value (NCAV) -$27.50
Graham Number $33.29
PEmg 15.98
Current Ratio 3.31
PB Ratio 5.44
Dividend Yield 1.43%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $1,684,478,000
Total Current Liabilities $508,581,000
Long-Term Debt $4,133,060,000
Total Assets $6,731,655,000
Intangible Assets $3,633,881,000
Total Liabilities $5,251,703,000
Shares Outstanding (Diluted Average) 129,704,000

Earnings Per Share History

Next Fiscal Year Estimate $4.28
Dec2014 $3.83
Dec2013 $3.40
Dec2012 $4.44
Dec2011 $2.49
Dec2010 $2.45
Dec2009 $1.81
Dec2008 $0.14
Dec2007 -$0.72

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.89
Dec2014 $3.57
Dec2013 $3.26
Dec2012 $2.88
Dec2011 $1.82
Dec2010 $1.23
Dec2009 $0.50
Dec2008 -$0.15
Dec2007 -$0.24

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Media Entertainment Industry – October 2015
Scripps Networks Interactive Inc. Analysis – September 2015 Update $SNI
20 Companies to Research This Week – 9/6/14
Scripps Networks Interactive Inc. Annual Stock Valuation – 2014 $SNI

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The Best Companies of the Media Entertainment Industry – October 2015
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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