On Tuesday, Guggenheim reiterated its Buy rating on Warner Brothers Discovery (NASDAQ:WBD), maintaining a $12.00 price target for the company's stock. The firm updated its model for Warner Bros.
Discovery, taking into account a softer anticipated content revenue from Studios, a dip in Networks distribution following the non-renewal by Fubo, and updated estimates for direct-to-consumer (DTC) sports content expenses and launch costs.
The revised estimates for the second quarter show total company revenue at approximately $9.95 billion, a decrease from the previously expected $10.3 billion. Adjusted EBITDA is also forecasted to be lower at $2.0 billion compared to the earlier $2.2 billion prediction. For the full year, the revenue and adjusted EBITDA forecasts have been adjusted to $40.8 billion and $9.55 billion, respectively.
The free cash flow forecast for the second quarter has been modified to $1.1 billion from the prior $1.2 billion, reflecting the lowered adjusted EBITDA, although the free cash flow conversion rate remains relatively unchanged at 55.4%. The firm noted that investor focus is likely to be on the outcome of the company’s potential matching bid for NBA rights.
Management's strategy in response to losing the NBA or retaining a smaller rights package at a significantly higher rate is anticipated to be a key discussion point on the second quarter earnings call.
The firm's stance on Warner Brothers Discovery remains positive, with the Buy rating and $12.00 price target unchanged despite the revised financial forecasts.
In other recent news, Warner Bros. Discovery has seen significant analytical attention due to various recent developments. Evercore ISI cut the price target for the company's shares to $10.00, down from $12.00, due to lowered expectations from the studio segment.
The firm also revised its EBITDA forecast for the company from $2.00 billion to $1.93 billion. This comes despite a promising theatrical lineup for the latter half of the year, including titles like "Beetlejuice Beetlejuice" and "Joker: Folie à Deux."
In merger news, Paramount Global is reportedly exploring a merger with Warner Bros. Discovery to combine their streaming services, Paramount+ and Max. This strategic move aims to strengthen their positions in the competitive streaming market.
Goldman Sachs (NYSE:GS) has initiated a Neutral rating on Warner Bros. Discovery, projecting a modest compound annual growth rate of 1% for the company's revenue over the next six years. This growth is expected to be driven by a 7% increase in direct-to-consumer services and a 2% rise in studio revenues. However, the firm also forecasts a contraction in Warner Bros. Discovery's EBITDA, attributing this to higher content costs, particularly related to sports rights.
KeyBanc Capital Markets maintained an Overweight rating on Warner Bros. Discovery, suggesting that the company's EBITDA for its Networks segment might be lower with the NBA than without, given the current prices.
InvestingPro Insights
As investors consider Guggenheim's reaffirmed Buy rating on Warner Brothers Discovery, they may find additional context in the company's financial health and market position. According to InvestingPro data, Warner Brothers Discovery is currently trading at a low Price / Book multiple of 0.41, reflecting a potential undervaluation of its assets as of the last twelve months leading up to Q1 2024. Despite recent challenges, the company remains a prominent player in the Entertainment industry. However, it's worth noting that analysts do not expect the company to be profitable this year, and short-term obligations have surpassed liquid assets, which could indicate liquidity concerns.
InvestingPro Tips suggest that while Warner Brothers Discovery operates with a moderate level of debt, it has not been profitable over the last twelve months and does not pay a dividend to shareholders. These factors could influence investment decisions, particularly for income-seeking investors. For a deeper analysis, there are additional InvestingPro Tips available that could provide further insights into Warner Brothers Discovery's financials and market prospects. Interested readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking more valuable investment tips.
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