We like  Scripps Networks Interactive (NYSE SNI) based on strong revenue and profit growth from lifestyle media content business and ample free cash flows.  We expect to see the company generate earnings per share of $3.17 in 2012 and to increase EPS by 12-15% annually over the following three years.

Scripps Networks Interactive is an industry leading developer of high-profile, lifestyle-oriented content for many media platforms including television, digital, mobile and publishing.  Previously headquartered in Cincinnati, SNI relocated to Knoxville, TN last year and has offices in New York, Los Angeles, Chicago, Cincinnati, Detroit, Atlanta, Nashville, San Francisco and Chevy Chase, MD.  SNI has 1800 employees; only about 5.6% work in corporate overhead.  On July 1, 2008, Scripps Networks Interactive, Inc. became a publicly traded company as the result of the separation of The E. W. Scripps Company into two independent, publicly-traded companies through the spin-off of Scripps Networks Interactive, Inc. to the E. W. Scripps shareholders.

The company’s media portfolio includes these popular lifestyle brands:

Keys to Investment Thesis

We like that Debt Net of Cash only accounts for less than 16% of assets. Although the company has total debt that represents 35% of total assets, the company could easily pay it down by devoting 3 years of net income from continuing operations to pay it down.  SNI has $760M in cash and $455M in strategic investments in international affiliates.  We like to net out the cash from the outstanding debt and we see that this reduces net debt to less than 16% of assets.

2011 Free Cash Flows exceeded Debt Net of Cash. SNI generated $673.3M in free cash flows from business operations in 2011, which exceeded SNI’s Debt Net of Cash of $623.85M.

SNI’s prudent cash management on behalf of shareholders. SNI repurchased $485M in stock last year net of share issuance for employee stock options.  SNI has $500M remaining under its current authorization and increased its dividend by over 26% to $.12/quarter, resulting in a .98% dividend yield.

THE FULL REPORT IS AVAILABLE TO PREMIUM MEMBERS

Disclaimer: Under no circumstances must this document be considered an offer to buy, sell, subscribe for or trade securities or other instruments.

Disclosure: The author is long SNI shares.

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