On Monday, Guggenheim analysts reaffirmed their Buy rating on Warner Brothers Discovery (NASDAQ:WBD) shares with a steady price target of $14.00, as the stock trades near $9.70. According to InvestingPro data, analyst targets range from $8.19 to $22.00, with the overall consensus remaining moderately bullish.
The firm's analysts adjusted their model for the company to account for softer advertising trends, particularly in network and direct-to-consumer (DTC) segments. The revision reflects lower-than-expected ratings for NBA and NHL broadcasts and post-election viewership at CNN.
Warner Brothers Discovery's DTC subscriber growth estimates were also recalibrated, taking into consideration the smaller market launches in the Asia-Pacific region and the introduction of Max with Ads on Charter's Spectrum TV in mid-December. The new forecast anticipates 4.5 million net subscriber additions, with 1.9 million domestically and 2.6 million internationally, a decrease from the previously projected 5.5 million net adds.
Despite the adjustments in subscriber growth and advertising trends, Guggenheim has increased its fourth-quarter Studio segment profit outlook to align with management guidance. Consequently, the firm's estimate for the total company EBITDA for the quarter is now slightly higher at $2.66 billion, up from the previous $2.5 billion.
For context, InvestingPro shows the company's last twelve months EBITDA at $7.15 billion, with a notable free cash flow yield that suggests strong cash generation capabilities. The 2025 EBITDA forecast remains relatively unchanged at $9.06 billion, and the 2025 Free Cash Flow forecast is set at $4.0 billion, implying a 45% free cash flow conversion, which is within the company management's target range of 33%-50%.
The analysts noted that their recent model assumptions did not include any significant contribution from Venu, which was discontinued on January 10, and they believe that any associated costs were immaterial. With these considerations, Guggenheim continues to support their Buy rating and $14 price target for Warner Brothers Discovery stock. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which covers this prominent entertainment industry player along with 1,400+ other top US stocks.
In other recent news, Warner Bros. Discovery has seen a flurry of notable developments. The company announced a $1 monthly increase for its discovery+ streaming service in the U.S., with new rates effective immediately for new subscribers. The media giant also disclosed the resignation of Li Haslett Chen from its board of directors, effective January 31, 2025, with no immediate plans for a successor announced.
Warner Bros. Discovery has also undergone a significant restructuring, dividing its operations into two new divisions: Global Linear Networks and Streaming & Studios. This move, backed by BofA Securities, Goldman Sachs (NYSE:GS), and Wolfe Research, is designed to enhance strategic flexibility and potentially unlock additional shareholder value. The restructuring is expected to be fully implemented by mid-2025.
Benchmark maintains a Buy rating on the company's stock, while Bernstein SocGen Group and Goldman Sachs have maintained neutral ratings. The company has also launched two new advertising solutions, Shop with Max and Moments, powered by KERV.ai's technology. These solutions aim to enhance the streaming experience by integrating shoppable content.
Lastly, Goldman Sachs reaffirmed its Neutral stance on Warner Brothers Discovery, maintaining the stock's price target at $9.50. The restructuring of the company into two distinct operating divisions is expected to provide each division with more operational flexibility and strategic options.
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