Warner Bros. Discovery’s progress in making its streaming business profitable and reducing its debt after the mega-merger that created the Hollywood giant was in Wall Street’s focus on Thursday.
With the entertainment conglomerate’s second-quarter results in the book, including a streaming loss of just $3 million, and management commentary, including boosting its post-merger cost-savings target to more than $5 billion, analysts shared their latest takes on the stock, which has gained year-to-date, and its outlook.
Several experts reiterated their confidence in the company’s path and improvements, but at least one analyst swam against the stream, downgrading their stock rating. As of mid-day Thursday, the conglomerate’s shares were down 1.2 percent at $12.40.
Bank of America analyst Jessica Reif Ehrlich had a bullish reaction to the earnings update, maintaining her “buy” rating and $21 stock price target on Warner Bros. Discovery. “WBD’s second-quarter performance reflects the heavy lifting management has undertaken over the last year,” she argued in a report that she entitled “Ringing the Register.”
Streaming “was essentially breakeven” in the latest period “despite marketing effort to launch Max in May while free cash flow was significantly above our estimates,” she also highlighted. Concluded Reif Ehrlich: “We remain extremely bullish on the long-term potential of WBD and view current valuation as attractive.”
Guggenheim expert Michael Morris kept his $18 stock price target and a “buy” rating in his assessment. “Profitability outlook was largely unchanged with management now expecting it to come in at the lower end of the previous $11-$11.5bn range, pointing to the writers strike and ad market as potential puts and takes,” Morris wrote. “The company continues to execute on synergies efforts, noting a clear path to achieving $5bn or more.”
Wells Fargo analyst Steven Cahall also maintained his $20 stock price target and “overweight” rating in a report entitled: “Deleveraging Like a Boss.” “Revenues remain somewhat choppy but WBD is managing to do what it can: adjusted EBITDA, free cash flow and ultimately deleveraging,” he wrote. “With strong HBO and Warner Bros. content we think it has lots of options.”
The expert also argued that “cost controls and cash generation are WBD management’s strong suit. His conclusion: “WBD is the most commercial media company in terms of always considering options, including licensing HBO content, M&A, etc.”
TD Cowen analyst Doug Creutz also reiterated his “outperform” rating with a $19 price target on WBD’s stock,” highlighting on Thursday that ”management continues to execute against financial targets.”
Meanwhile, CFRA Research analyst Kenneth Leon, cut his rating from “buy” to “neutral” and his price target on WBD shares by $4 to $14. “WBD is making progress to realize higher growth and profitability, but at a slower pace than our expectations,” he explained.
And UBS analyst John Hodulik remains “neutral” on WBD shares with a $15 price target, but also underlined the company’s progress on cutting down its debt. “Upside to cash generation keeps deleveraging on track” was his appropriate report headline. He highlighted that “EBITDA [was] ahead and free cash flow significantly better” than expected.
Hodulik also offered that streaming was near breakeven in the second quarter, “likely boosted by library deals.”