Skip to main content

Discovery Networks Stock is a Becoming a Pullback Opportunity Lower

Wednesday, April 14, 2021 | Jea Yu
Discovery Networks Stock is a Becoming a Pullback Opportunity LowerMedia company Discovery Networks (NASDAQ: DISCA) stock experienced a questionable price surge on the coattails of peer Viacom (NYSE: VIAC). Subsequently, Discovery Networks shares also shadowed Viacom’s implosion and volatility as news of Archegos Capital Management margin calls triggered forced liquidation of positions in its portfolio. The mistake would be to assume the run-up to $78.14 on DISCA shares and especially the run-up to $101.97 on VIAC had any semblance of a fair value or “reality” in the first place. The reality is that we now know that Archegos was largely the catalyst and driver behind the artificial run ups as evidenced by the complete lack of price supports on the way down. It’s a mistake to assume shares are “cheap” based on a 40-60% haircut within a month, especially when there’s been no fundamental change in the underlying company. The real question is whether the prior run-up was justified and then assessing what is a true fair “market” value in the shares? Viacom and Discovery Networks shares are undergoing the market price discovery phase now. Keep in mind Viacom was basing around $35 and Discovery Networks around $28 in December 2020, prior to the meteoric squeeze high $101s and $78s, respectively. As benchmark indices may new all-time highs, both stocks are having difficulty gaining any steam on the upside, which illustrates that the market still feels these stocks are overvalued. A longer period of consolidation is in store as hopes for a V-shaped slingshot recovery fades.

What Moves Stock Prices?

This goes to my theory of stock price action being based on narrative which impacts sentiment which moves price. However, the anomaly situation is when price moves so extremely that it changes the sentiment and narrative. This happened to Viacom shares on the way up and subsequently Discovery Network shares. Investors scratched their heads questioning what catalyst was on the horizon causing shares to spike and shorts got their heads handed to them in a merciless squeeze.


Family office Archegos Capital Management employed highly levered total return swaps to disguise their ownership behind prime brokers like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and Credit Suisse (NYSE: CS). This enabled them to bypass 13-f filings required by family offices for holdings valued at over $100 million in addition to providing upwards of 8X leverage. The secondary effect is the illusion that these blue-chip investment banks were taking institutional stakes in Archegos positions implying a bullish “halo” effect for traders and investors monitoring institutional ownership updates. This further begs the question of the true motive behind the extreme buying as prices rose for 12 straight weeks. All kinds of theories and rumors were created including potential mergers, acquisitions, private equity, and news yet to hit the wires. When the market discovered the real buying demand was not based on material/news or catalysts to justify the run-up, other than a pump and (forced) dump, it punished and continues to punish shares after basically being hoodwinked. The institutional buyers of Viacom’s $2.65 billion stock offering composed of 20 million Class B common shares priced at $85 and 10 million 5.75% Series A mandatory convertible notes with liquidation preference price at $100 per-share, can’t be too happy. Keep in mind, the convertible shares automatically convert to Class B shares on April 1, 2024.

Q4 2020 Earnings Release

On Feb. 24, 2021, Discovery Networks released Q4 2020 results for the quarter ending in December 2020. The Company reported earnings per share (EPS) of $0.76 excluding non-recurring items, beating consensus analyst estimates of $0.72, by $0.04. Revenues grew 0.3% year-over-year (YoY) to $2.88 billion, beating analyst estimates for $2.83 billion. Adjusted OIBDA fell (-9%) YoY to $1 billion. The Company finished 2020 with over $2.3 billion in free cash flow and a 56% adjusted-operating-income-before-depreciation-and-amortization (AOIBDA) to free cash flow conversion rate.

Valuation and Growth Drivers

With a 21 P/E, shares are trading at double Viacom P/E hovering around 11. Discovery has the best-in-class non-scripted content available in over 200 global markets in 49 languages reaching 800 million global daily viewers. Discovery Networks roll out of its Discovery+ streaming platform has embedded a premium in shares for the time being as its seen as a growth driver just getting started. Discovery+ direct-to-consumers membership rose from five million in December to 12 million paying customers by the end of February. The Company deems its streaming platform as it’s “next-generation revenue” generator. In Q4 2020, almost 93% of its 55,000 episode library had been watched indicating a long tail of content. Moving forward, all eyes are on the growth metrics for Discovery+. Risk-tolerant investors can look for deeper opportunistic pullback levels to consider exposure.

Discovery Networks Stock is a Becoming a Pullback Opportunity Lower

DISCA Opportunistic Pullback Levels  

Using the rifle charts on weekly and daily time frames provides a near-term view of the landscape for DSICA stock. The weekly rifle chart uptrend lasted for 12 weeks after basing in the $28s in December 2020 before the parabolic price squeeze up to towards the $78.32 Fibonacci (fib) level. The weekly 5-period moving average (MA) is falling at $55.12 towards the 15-period MA at the $47.63 fib as the weekly stochastic continues its oscillation down through the 60-band. The monthly 5-period MA sits at $42 acting as a critical line in the sand going into the April monthly candle close. The weekly formed a market structure high (MSH) sell trigger below $34.60 daily while the daily formed a market structure low (MSL) buy trigger above $44.75. The daily rifle chart has a falling 5-period MA resistance at $42.46 as the stochastic attempts to cross up through the 20-band. If the daily stochastic crosses back down, then a daily inverse pup breakdown can form taking shares lower. Risk-tolerant investors can monitor opportunistic pullback levels at the $38.57 fib, $35.81 fib, $34.69 fib, $32.84 fib, $29.72 fib, $28.69 fib, and the $27.66 fib. Upside trajectories range from the $51.43 fib upwards to the $62.24 fib level. Keep an eye on VIAC shares as these two tend to move together.

Featured Article: Percentage Gainers

7 Cloud Computing Stocks to Lift Your Portfolio to New Heights

Cloud computing sounds complicated, and it has become more sophisticated as it evolves. However, the basic idea behind the cloud is the same. The “cloud” is a euphemistic term for the delivery of different services via the internet. In its early days, the cloud was used exclusively for data storage. Here’s an easy example of why this was important.

Back when the internet was cutting its teeth, I worked in marketing communications. The need to comply with Total Quality Control Systems (TQCS) for our largest clients meant we had to save every version of our files. Every. Single. One. Now imagine that you’re producing a 120-page product catalog complete with photos and charts. Your hard drive is burning up just thinking about it. Yet that “data” had to be stored somewhere. And so we had a virtual server farm to try to warehouse all these graphic intensive (and memory sucking) files until we could archive them.

Other than the storage nightmare, consider that it was a pain to work remotely. You could copy a file from the server, but then were you working on the right file? I’m sure at least one person is reading this who remembers this pain.

The cloud takes that away. Cloud computing allows you to store files on a secure, remote server that everyone can access anywhere they have an internet connection. But it’s become so much more than that. Cloud computing now gives businesses a platform from which they can create applications and software. If that sounds confusing, I hope to simplify it in this presentation. To help you understand which cloud computing stocks, you may want to add to your portfolio, and we’ve created this special presentation. These are seven of the cloud computing stocks that will continue to grow with the sector.

View the "7 Cloud Computing Stocks to Lift Your Portfolio to New Heights".

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Discovery (DISCA)1.8$35.76-2.8%N/A17.36Hold$40.37
The Goldman Sachs Group (GS)2.2$354.40-1.5%1.41%14.93Buy$358.19
Morgan Stanley (MS)2.0$83.68-1.5%1.67%14.11Buy$73.58
Credit Suisse Group (CS)1.4$10.07-0.3%0.89%6.33HoldN/A
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.