Raymond James analyst Ric Prentiss has initiated coverage of Walt Disney (NYSE:DIS) and Warner Bros. Discovery (NASDAQ:WBD) stocks with Outperform ratings while assigning a more conservative Market Perform rating to Paramount Global. This development comes after a challenging period for these media behemoths as they transition from traditional television to streaming platforms.
Despite the hurdles, including economic strains impacting the advertising sector and Hollywood strikes disrupting production schedules, Prentiss expressed optimism about potential growth in the sector. He noted that the anticipated cash flow growth is enticing for investment, especially given the significant drop in valuations.
On Monday, Prentiss set a $97 price target for Disney stock, citing the company's strategy of bundling its services as a strength that should lead to increased Average Revenue Per Account and robust pricing power. He also pointed to Disney's rich portfolio of intellectual properties - such as Marvel, Star Wars, and Pixar - as a factor that will continue to support all of the company's business sectors.
In addition to Disney, Prentiss sees potential in Warner Bros. Discovery, initiating coverage with a $19 price target. He highlighted the merger between WarnerMedia and Discovery as a strategic move that brings together two complementary streaming services: HBO Max and Discovery+. The merger is expected to enhance subscriber acquisition rates, reduce churn, and strengthen pricing power. Moreover, Warner Bros.'s extensive intellectual property portfolio featuring franchises like Harry Potter, Game of Thrones, and Lord of the Rings films is likely to boost subscriptions and revenue.
However, Prentiss showed less enthusiasm for Paramount Global. He did not provide a price target for the stock and observed that Paramount's heavy reliance on traditional linear TV could offset improvements in streaming cash flows and act as a growth deterrent.
In premarket trading on Monday, Disney stock saw a slight increase of 0.2% to $85.70. Meanwhile, Warner Bros. and Paramount stocks remained stable at $11.84 and $14.06 respectively.
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