Paramount stock downgraded by Wells Fargo, again, as analyst outlines streaming strategy and deal options – The Hollywood Reporter

Wells Fargo analyst Steven Cahall has a Halloween surprise in store for investors, downgrading his rating to World Paramount shares to “underweight” and reduce its price target from $19 to $13. And this even if he had just downgraded the title from “overweight” to “equal weight” at the beginning of October and reduced his target price by $40.

“We’ve been bulls on Paramount’s streaming content and execution. While these aspects have evolved well – and credit is due to management – ​​it increasingly looks like a myopic view of the stock,” the analyst explained. first downgrade back at the start of the month. “We’re increasingly concerned about the linear ecosystem across media, and it’s taking away any visibility into what we were playing for as bulls: a revenue dip with streaming driving growth on the other side. .”

So why is Cahall even more bearish on Paramount stocks now? The stock has done too well despite the struggles faced by media and entertainment companies, he argued.

“We can no longer justify its premium multiple amid our more negative view of linear trends and uncertain direct-to-consumer outlook,” he explained in his Monday report titled “Harder to Underwrite Strategy and at the premium”. “Paramount is trading at approximately 8.5 times our estimated calendar year 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA) versus Warner Bros. Discovery at seven times, Fox Corp. at six times and AMC Networks at five times. time.”

Instead, Cahall said he would “anchor Paramount’s valuation” to his media peers at seven times enterprise value/EBITDA, which brings him to $13 per share.

“We see opportunities for Paramount to unlock value, but don’t believe they are currently being explored,” the Wells Fargo analyst said. Cahall also shared some thoughts on how this release of value could work for the entertainment company. For example, he discussed the success and prospects of the company’s own streaming services, led by Paramount+.

“A strategic change would make us more positive. With management largely playing the hand dealt to them, we think Paramount needs to either change its strategy or accept valuations closer to Warner Bros. Discovery and Fox,” he wrote. “Paramount’s content is undoubtedly valuable, but self-distribution via direct-to-consumer (DTC) which may not scale devalues ​​it because it doesn’t monetize as effectively. We struggle to value DTC with no clear path to solid profitability. Alternatively, Paramount could become an arms dealer and at a Fox-esque 6.5 times…the multiple would be worth $26 per share.

Or, so Cahall, the conglomerate might be looking for transaction options. “He could pursue split/sell strategies like Lionsgate, with Paramount Studios worth $30 billion in business,” he wrote. “Such moves would signal a value-maximizing inheritance. We do not believe these are currently under consideration.

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