Scripps Networks Valuation – July 2016 $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 Companies Benjamin Graham Would Invest In Today - July 2016.  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 (SNI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Scripps Networks Interactive, Inc. is a developer of lifestyle-oriented content for linear and interactive video platforms, including television and the Internet brands. The Company’s segments include U.S. Networks, International Networks, and Corporate and Other. Its U.S. Networks segment includes its approximately six national television networks: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. In addition, U.S. Networks segment includes Websites associated with television brands and other Internet and mobile businesses serving home, food, travel and other lifestyle-related categories. Its International Networks segment includes the lifestyle-oriented networks available in the United Kingdom, other European markets, the Middle East and Africa, Asia Pacific and Latin America. In addition, International Networks segment includes TVN S.A., which operates a portfolio of free-to-air and pay-TV lifestyle and entertainment networks.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of SNI – July 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 $8,512,450,328 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.57 Fail
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 1045.53% Pass
6. Moderate PEmg Ratio PEmg < 20 14.96 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.65 Fail
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 1.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.32 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 July 2016

EPSmg $4.41
MG Growth Estimate 7.96%
MG Value $107.77
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $64.01
MG Value based on 0% Growth $37.52
Market Implied Growth Rate 3.23%
Current Price $66.06
% of Intrinsic Value 61.30%

Scripps Networks Interactive, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.88 in 2012 to an estimated $4.41 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.23% annual earnings growth 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.

Scripps Networks Interactive, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

SNI charts July 2016

Net Current Asset Value (NCAV) -$24.19
Graham Number $40.00
PEmg 14.96
Current Ratio 1.57
PB Ratio 4.65
Current Dividend $0.94
Dividend Yield 1.42%
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,653,775,000
Total Current Liabilities $1,051,874,000
Long-Term Debt $3,200,794,000
Total Assets $6,638,324,000
Intangible Assets $3,603,341,000
Total Liabilities $4,792,861,000
Shares Outstanding (Diluted Average) 129,790,000

Earnings Per Share History

Next Fiscal Year Estimate $4.97
Dec2015 $4.66
Dec2014 $3.83
Dec2013 $3.40
Dec2012 $4.44
Dec2011 $2.49
Dec2010 $2.45
Dec2009 $1.81
Dec2008 $0.14
Dec2007 -$0.78

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.41
Dec2015 $4.01
Dec2014 $3.57
Dec2013 $3.26
Dec2012 $2.88
Dec2011 $1.81
Dec2010 $1.22
Dec2009 $0.49
Dec2008 -$0.16
Dec2007 -$0.26

Recommended Reading:

Other ModernGraham posts about the company

26 Best Stocks For Value Investors This Week – 2/6/16
Scripps Networks Interactive Inc Valuation – February 2016 Update $SNI
The Best Companies of the Media Entertainment Industry – October 2015
15 Best Stocks For Value Investors This Week – 9/12/15
Scripps Networks Interactive Inc Valuation – February 2016 Update $SNI

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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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