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Shares of the company were up 5.1 percent at $12.21 as of 10:25 a.m. ET. They had ended Monday’s trading session at $11.61, up 22.5 percent from their 2022 closing price of $9.48.
Goldman Sachs analyst Brett Feldman designated Warner Bros. Discovery, on which he has a “buy” rating and 12-month price target of $19, or 63 percent upside, his “favorite media stock.” He noted that the company faces the same challenges as its peers, including economic clouds, cord-cutting and “intense streaming competition,” but trades at the low-end of sector stocks when looking at enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA).
“We estimate that WBD is best positioned to drive EBITDA growth, ramp free cash flow and delever its balance sheet in 2023 as it pursues $3.5 billion of merger synergies and relaunches its flagship streaming service,” the Goldman expert wrote. “As such, while we expect investors to continue to debate the long-term outlook for traditional media companies, we see the risk/reward skew for WBD as most attractive versus its peer group with key execution catalysts (merger milestones, streaming relaunch) largely within management’s control.”
Meanwhile, Bank of America analyst Jessica Reif Ehrlich reiterated her “buy” rating and $21 price objective on the stock, while adding it to her company’s so-called “U.S. 1 list” of “best investment ideas.” In a report entitled “an improving narrative,” the Wall Street veteran predicted that “WBD’s fourth-quarter results will reflect choppy macro, but will be an opportunity for management to reset the narrative for ’23.” And she said that “we anticipate ’23 will be the beginning of our growth and deleveraging thesis for WBD,” which had made her bullish when the Discovery-WarnerMedia deal that created the powerhouse closed in April.
Looking at the past year’s economic, cord-cutting and other challenges though, Reif Ehrlich explained: “2022 was mired by a combination of company-specific merger-related headwinds along with cyclical and secular pressures. At this point, the majority of heavy lifting (related to restructuring charges etc.) has been completed, direct-to-consumer (DTC) losses peaked in ’22 with a path to breakeven in ’24, and the cyclical headwinds should abate as macro conditions improve.”
The Bank of America expert also highlighted positive trends and potential catalysts ahead. “It already appears January advertising trends have improved sequentially (albeit off a modest base) from December levels, and comps would ease as the year progresses,” she wrote. “In addition, WBD has renewed over 30 percent of affiliate deals at attractive pricing terms, which should help mitigate the secular challenges related to cord-cutting. This, coupled with the spring launch of a new combined DTC service, a more robust film slate, incremental synergies and de-risked consensus forecasts makes WBD’s risk/reward highly attractive at current levels.”
Other Wall Street analysts’ Hollywood stock picks for 2023 include the likes of Walt Disney, Fox Corp. and Netflix.
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