Discovery Communications Inc. (NASDAQ: DISCA) stock has been upgraded by Macquarie Research’s Tim Nollen from Neutral to Outperform with a price target increased from $20 to $26.

DISCA’s acquisition of Scripps Networks is considered as a highly accretive deal that the Street is overlooking, Nollen said in a research note. The deal is expected to be 16 percent accretive to Discovery’s EPS and 19 percent for free cash flow in year one, then expected to be followed by a mid to high-20 percent rate for both metrics in year two. Therefore once the merger is finalized and on track to achieve its metrics, DISCA is likely to become a player in further industry consolidation, either as a buyer or seller.

As per the analyst, Scripps’ consolidation into one content group that spans the linear and digital space allows for the simultaneous content creation and production efficiencies. This has already resulted in $150 million in annual digital advertising revenues that’s growing at a double digit rate. The company’s online content focuses mostly affluent millennials and can help offset any linear TV ad declines.

Moreover, as per the analyst, outside of the U.S. market, DISCA’s Eurosport Player is “well ahead of the pack” in achieving scale an boasts a “relatively decent” penetration with its rights to the Olympics, Bundesliga, and ATP tennis. This would be good enough to build an international over the top (OTT) platform.

Meanwhile, DISCA has completed an agreement with Oprah Winfrey’s Harpo, Inc. to increase its ownership stake in its successful OWN: Oprah Winfrey Network joint venture.

Under the terms of the transaction, Discovery paid $70 million to acquire an additional 24.5% stake in OWN from Harpo, Inc., after taking into account net debt at the network, increasing Discovery’s ownership stake to more than 70%. This transaction represents Winfrey’s first payment from Harpo, Inc.’s ownership stake in OWN in the 10 years since forming the joint venture with Discovery. Winfrey’s Harpo, Inc. will retain a significant minority interest in OWN and Winfrey will continue in her role as CEO, with her exclusivity commitment to the network extended through 2025.

Additionally, in the third quarter, DISCA has posted 6% increase in the revenues of $1,651 million  compared to the prior year, due to the 11% growth at International Networks and 4% growth at U.S. Networks were partially offset by a decline at Education and Other.  The adjusted Operating Income Before Depreciation and Amortization grew 3% to $575 million due to 5% growth at U.S. Networks, partially offset by higher corporate costs.  Excluding currency effects, third quarter total Company revenues and Adjusted OIBDA grew 4% and 3%, respectively.

DISCA stock has fallen 15.69% in a year (source: Google Finance).