Discovery Communications, Inc. (DISCA) shares are surging after an excellent quarterly report and news of a shift in operational strategy.

Company Description

Discovery Communications, through its subsidiaries, provides creative, media management and network services to the media and entertainment industries. Its client base includes motion picture studios, independent producers, broadcast networks, and others.

Discovery is a global media and entertainment company that offers original and purchased programming in the United States and over 170 other countries with over 100 television networks.

Second Consecutive Surprise

On Feb 25 Discovery reported fourth-quarter and full-year results for 2008. Net income surged to $105 million, up from a loss of $8 million last year. Free cash flow was up $24 million to $128 million.

Earnings per share came in at 32 cents, beating the consensus by 3 cents. There have only been two quarterly announcements since the company was covered by Zacks and both were positive surprises.

Lower Risk, Higher Reward

Discovery signed a deal on Mar 16 to outsource the company’s interactive commerce business to Delivery Agent, Inc.

Kelly Day, CEO of Discovery, said “Transitioning to a royalty model provides opportunity for increased profitability while significantly reducing the financial risk of holding large product inventory.”

Estimates are Up

Since the year-end announcement, full-year estimates are up for both 2009 and 2010. The consensus for 2009 is now $1.17, up from $1.03 one month ago. Wall Street forecasts for 2010 are averaging $1.38, up from $1.12 over the same time frame.

These projections represent a year-over-year earnings growth of 21% for this year and another 17% in 2010.

The Chart

Shares of DISCA formed a quick double bottom after the earnings release and then spiked through resistance near $16.

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