Rosenblatt Upgrades Warner Bros. Discovery stock on Breakup Potential
WBD
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On Thursday, Rosenblatt Securities adjusted their stance on Warner Brothers Discovery (NASDAQ:WBD), upgrading the stock from Sell to Neutral and increasing the price target to $10.00 from the previous $7.00. The firm’s analysis suggests that a potential breakup of Paramount could lead to a similar outcome for Warner Bros. Discovery, which could positively impact the company’s valuation.
Warner Bros. Discovery’s studio operations, which include a strong movie lineup, extensive TV production, and a significant presence in the video game industry, are noted to be more profitable than those of Paramount. Projections for the year indicate an expected Adjusted EBITDA of $2.3 billion for Warner Bros. Discovery in 2024.
The valuation of Warner Bros. Discovery’s studio at 13 times the Adjusted EBITDA is estimated to be worth $30 billion, which is compared to the company’s nearly $40 billion in net debt. The equity value is anticipated to be influenced by the worth of TV networks and direct-to-consumer (D2C) streaming assets.
The firm outlines two scenarios for Warner Bros. Discovery’s sum of the parts (SOTP) valuation. In the first scenario, where TV networks are valued at 4 times the projected 2024 Adjusted EBITDA and D2C streaming, including HBO, is assigned a zero value (assuming a shutdown), the SOTP would be $10, reflecting a 12% increase. In the second scenario, if D2C streaming is valued at 1 times the projected 2024 sales, the SOTP could rise to $14, marking an increase of over 60%.
Despite the potential for increased valuation, the report acknowledges the reluctance of Warner Bros. Discovery’s C-suite to consider a sale at the current share price.
