Summary
- The company just reported second quarter earnings and both earnings and revenues grew.
- Sentiment toward the media operator is pretty bearish at this time and that could help propel the stock higher.
- There is a clear trend line that connects the lows from the last few years and the stock is hovering just above it at this time.
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Media operator Discovery (DISCA) reported earnings on August 6, and the company missed both the EPS estimate and the revenue estimate. The company operates networks such as Discovery Channel, Animal Planet, Food Network, HGTV, and the Science Channel.
Even though the company missed its estimates, the stock moved higher with the overall market on the day and that could be because of the growth in earnings and revenues. The company reported earnings of $0.98 per share on revenue of $2.885 billion - the EPS estimate was $1.05 and the revenue estimate was $2.9 billion. The EPS figure was 27.7% higher than the $0.77 Discovery earned in the second quarter of 2018 and the revenues were 1.4% higher than last year.
In the last three years, Discovery has averaged earnings growth of 19% per year and revenue growth of 23% per year. With many companies seeing earnings shrink or come in flat, investors may have been willing to overlook the fact that the company came up short of the estimates.
Looking at the management efficiency measurements for Discovery, the return on equity is at 31.2%, the profit margin is at 24.3%, and the operating margin is at 32.6%. All three of these figures are above average.
The Chart Shows an Upwardly Sloped Trend Line
Looking at the weekly chart for Discovery, there is an upwardly sloped trend line that connects the lows from November '17, December '18, and May '19. The stock has dropped in the last four weeks and it is hovering just above the trend line at this time.
Over the last eight months or so, a parallel upper rail seems to have formed that connects the highs from February, April, and July. This upper rail could make a nice target for the stock over the next three months before the next earnings report.
The overbought/oversold indicators were in oversold territory, but the pullback over the last four weeks has moved them down. The 10-week RSI is below the 50 level and we see a bit of a pattern in it as well. The indicator has put in a series of higher lows since the low in December.
