2 Non-Consensus Stock Reports from Boyar Research: Western Union and Discovery Communications

Boyar Research recently profiled two companies that are currently very much out of favor in the investment community, Western Union and Discovery Communications. Western Union is now the second most shorted stock in the S&P 500 and out of the 28 analyst covering Discovery Communications, there are only 3 buy ratings.

To receive our full-length report on both of these companies, please click here.

For over forty years, Boyar Research has been providing profitable non-consensus stock ideas to our subscribers. We have demonstrated time and again that we are not afraid of challenging popular opinion or providing our clients with a profitable contrarian perspective, from profiling financial companies in 1987, when they sold at a significant discount to the rest of the market; to advocating purchasing drug company shares in 1993 after the S&P drug group lost nearly 40% of its value due to fears over “Hillarycare”; to being bullish on U.S. housing-related stocks in 2011.

To receive our full-length reports on both Western Union and Discovery Communications, please click here.

So what attracts Boyar to Western Union, which has 14% of its shares sold short?

  • In our view, WU’s rapidly growing digital money transfer business, WU.com, could single-handedly lift the Company’s EPS growth to 10%-13% by 2020, from flattish today. WU.com is a hidden asset within WU. Using conservative assumptions, we estimate that WU.com will account for 27% of Western Union’s enterprise value in 2020, up from 11% in 2016.
  • Recent precedent transactions—namely, PayPal’s takeover of Xoom, the #2 digital money transfer provider, and the bidding war for MoneyGram, the #2 global retail C2C money transfer provider—highlight WU as substantially undervalued. Moreover, WU is the #1 player in both of these businesses.
  • Applying a 3.5x revenue multiple to WU.com, which is a discount to Xoom’s 4.8x revenue takeover multiple, and 15x EV/FCF to WU’s remaining businesses (retail C2C, C2B, and B2B), which is a substantial discount to MoneyGram’s 21x EV/FCF takeover valuation, we derive an intrinsic value estimate of ~$33 per share for WU at the end of 2020, offering ~72% upside, or a 3.5-year IRR of ~20% including the dividend (3.7% current yield).

Why do we like Discovery Communications despite the consensus view that traditional cable companies are secularly challenged?

  • Following a number of key affiliate fee renewals in both U.S. and international markets, DISCK has significant revenue and cash flow visibility. Notably, international affiliate fee revenues are expected to increase at a low-double-digit percentage rate over the next few years.
  • A host of potential growth opportunities should favorably impact Discovery’s future results, including increased consumer adoption of Discovery GO (streaming content); further traction with various subscription-based initiatives, including the Eurosport Player; and increased pay-TV penetration in key international markets.
  • Since 2010, DISCK has deployed $8 billion toward buybacks (~50% of its current market cap)—reducing diluted shares outstanding by over 30%—including $1.4 billion utilized in 2016 to repurchase ~53 million shares at an average cost of ~$26 a share. We expect share repurchases to be a recurring theme as a result of the Company’s strong revenue and cash flow visibility, coupled with DISCK’s currently depressed share price and attractive valuation.
  • Applying discounted multiples (relative to precedent industry transactions) of 10.0x and 9.0x our 2019E EBITDA for the U.S. and International Networks segments, respectively, we derive an estimate of intrinsic value of $47 a share, representing over 80% upside from current levels. We continue to believe that Discovery represents an attractive acquisition target.

To receive our full-length report on both of these companies, please click here.

* Past performance is no guarantee of future results. These results are not audited.

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