January 10, 2011


DISCA has continued to drop since my last post and is now down over 5% since last Monday and more than 1.5% below from where I bought more on Thursday morning.  Since this is currently my largest position I decided more research was in order (and some of this I should have done already).

To recap, DISCA is trading at a multiple more or less equal to the growth rate, very cheap.  I listened to the 3rd quarter conference call today (from Nov 2nd) and heard didn't hear anything to change my bullish view on the company.  Also took a closer look at the 3rd quarter financials:

  • Current ratio is 2.7 vs. a 2.1 ratio at 3rd quarter 2009
  • Long tern debt is up only slightly (4% from 3rd quarter 2009)
  • 3Q net income was $186 million with only $49 million in interest expense for the quarter - And interest expense was actually down over 24% from 3Q 2009
  • Margins were up over 3Q 2009 - 45% vs 43% last year
The decline seems to coincide with a Citigroup conference they participated at last Tuesday, 1/4.  So thinking there must have been bad news I listened to the presentation today, which was a 30+ minute Q&A session.  It was sort of bland, but I didn't hear anything to drive the stock down - on the other hand nothing was said you'd consider "exciting" for the company, and maybe that's what the street was looking for.

We should also look at the chart since I did note last week that it was approaching support at $40, which it has broken through - that $40 is now resistance.  However, I see the next level of support relatively close, around $39, which is also just slightly above the 200 day ema.

My bottom line opinion - I see nothing to change my positive view on the company.  This is yet another buying opportunity, but I do recognize that the stock could have some difficulty trading above the $40 resistance in the short-term.  Also, if you look at the chart above, we're not that far from my stop which I placed a little below the 200 day ema.  Maybe I'll leave my common position alone and go with a call for my next by...?

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