Discovery $DISCA has only a market cap of $13 billion, compared to $600 billion for Disney $DIS and Netflix $NFLX combined but Discovery in the trailing twelve months had more Free cash flow than these two combined. Is Discovery still a buy?
I first invested in Discovery after the margin call on Archegos Capital which crashed the stock. But now it is a special situation stock as Discovery is going to merge with Warnermedia (owned by AT&T $T ) to create a new company. Discovery is a factual TV network and they are able to have higher margins compared to competitors.
The merger with Warnermedia will create a company owning CNN, WarnerBros studio, DC network, Eurosport, Discovery Channel, the Food Network, HBO, and more. Discovery shareholders are going to own 29% of the new company.
To know the intrinsic value of Discovery, we can calculate it separately and also calculate the intrinsic value of the new company and take 29% of it. According to my analysis, DISCA is undervalued today.