Warner Bros Discovery (NASDAQ: WBD) stock saw a modest rise in pre-market trading Monday following a positive shift in sentiment from KeyBanc analysts.
Brandon Nispel, an analyst at KeyBanc Capital Markets, recently made a significant shift in perspective regarding Warner Bros Discovery (WBD) stock, upgrading its rating from Sector Weight to Overweight. This upgrade was accompanied by a new price target of $11.00 for the media and entertainment company.
This change in stance follows a comprehensive reassessment of Warner Bros Discovery’s financial forecasts, with KeyBanc expressing a notably more positive outlook. The firm cited several catalysts for this improved rating, including the stabilization of the company’s financial estimates, marking a departure from previous downward trends.
Warner Bros Discovery recently disclosed its earnings results, which included a $200 million impairment charge in its Studio Game division related to the ‘Suicide Squad’ title. However, excluding this charge, the company’s performance exceeded expectations, particularly driven by better profitability in its Direct-to-Consumer (DTC) segment.
Looking forward, KeyBanc pointed to the impending NBA rights renewal as a potential positive development, suggesting that a resolution in this matter could serve as another catalyst for the company’s growth trajectory.
Moreover, the firm projected a favorable trajectory for DTC profitability, forecasting it to become profitable in 2024 and anticipating further expansion in 2025 through subscriber growth and price increases.
Despite enduring challenges within the Networks division, KeyBanc anticipates that the Studio’s performance will likely reach a nadir in 2024. With a strategic focus on bolstering free cash flow and reducing debt, KeyBanc believes there is ample scope for Warner Bros Discovery’s valuation multiples to converge more closely with industry averages. The firm estimates a reversion to approximately 6.5 times EBITDA and 15 times free cash flow, contrasting with the current multiples of 5.8 and 11.1, respectively.
Warner Bros Discovery (NASDAQ: WBD) Stock Movement
As of 05:22 a.m. (Eastern Time) Monday, WBD stock traded at $8.23, marking a 0.98% increase compared to the previous trading session.
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