Warner Bros Discovery upgraded to Buy by CFRA on valuation

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On Thursday, Warner Brothers Discovery (NASDAQ:WBD) received an upgrade in stock rating from CFRA, moving from “Hold” to “Buy.” Accompanying this upgrade, the firm also increased the price target for the media company’s shares to $14.00, up from the previous target of $13.00.

The decision to lift the rating is based on a valuation call that takes into account a cautious outlook. The media giant’s stock is currently trading near its all-time low, which CFRA believes presents an attractive risk/reward scenario. The firm’s analysts are counting on the company’s management to take necessary steps to rebuild shareholder value.

CFRA has set its new price target using a forward Total Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (TEV/EBITDA) multiple of 7.6 times. This is based on a lowered 2024 EBITDA forecast of $10.1 billion, which is down from the prior estimate of $11.0 billion and slightly below the consensus of $10.5 billion. This valuation is compared to the nearly 12.0 times average of Warner Bros Discovery’s direct peers.

In addition to the price target and rating changes, CFRA has adjusted its earnings projections for the company. The firm now expects a larger loss per share (LPS) for 2023, revising the figure to -$0.90 from -$0.80. For 2024, CFRA anticipates earnings per share (EPS) of $0.10, a decrease from the previous estimate of $0.45.

The analysis suggests that potential monetization of non-core assets could serve as a positive catalyst for Warner Bros Discovery, especially as the company looks to reduce its significant debt burden, which stands at $44.8 billion. CFRA also pointed to the underperformance of the Studios unit and the MAX streaming platform, where Warner Bros Discovery is expected to cut programming and content costs.

A rebound in advertising revenue is anticipated to benefit the company in 2024, thanks to a healthy U.S. economy. This could positively impact both linear TV and video streaming revenues. Investors and analysts will be closely monitoring the upcoming financial results from Warner Bros Discovery, which are set to be reported on February 28.

InvestingPro Insights

Following the rating upgrade by CFRA, Warner Brothers Discovery (NASDAQ:WBD) continues to be a topic of discussion among investors. According to InvestingPro, there are several key metrics and insights that could further inform investment decisions regarding the company.

InvestingPro data shows that Warner Brothers Discovery has a market capitalization of 25.51 billion USD, which underscores its significant presence in the Entertainment industry. While the company’s P/E ratio stands at a negative -5.29, this may reflect the challenges the company has faced, including those noted by CFRA such as a significant debt burden and underperformance in certain units. However, the company’s strong revenue growth over the last twelve months, at 61.74%, indicates a robust increase in sales which could be a positive signal for potential investors.

Two InvestingPro Tips that might be relevant in this context are the company’s strong free cash flow yield, which suggests that the valuation may be attractive, and the fact that Warner Bros Discovery is a prominent player in its industry. These considerations could be key factors for investors who are looking for opportunities in the media sector.

For those interested in a deeper analysis, InvestingPro offers additional tips on Warner Brothers Discovery. In total, there are 9 additional InvestingPro Tips available, providing a comprehensive outlook on the company’s financial health and market position. Subscribers to InvestingPro can access these valuable insights, especially now when the InvestingPro subscription is on a special New Year sale with a discount of up to 50%. Moreover, using coupon code SFY24 can get you an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 for an additional 10% off a 1-year subscription.

With the next earnings date on February 22, investors will be keen to see if the company’s strategic moves and cost-cutting efforts will align with CFRA’s cautious yet optimistic outlook for the rebuilding of shareholder value.

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