On Wednesday, CFRA, a market research firm, adjusted its price target for Warner Brothers Discovery (NASDAQ:WBD), reducing it to $10.00 from the previous $11.00. The firm retained a Hold rating on the stock. The adjustment was based on a revised risk premium and a forward Total Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (TEV/EBITDA) multiple of 6.5x, which is lower than the average for Warner Brothers Discovery's direct peers.
The research firm expressed concerns about the anticipated rate of growth and profit for the company's MAX video streaming service, suggesting that it might take longer to realize accelerated growth and earnings. The consensus target price of $13.70, according to the firm, implies a scenario for higher EBITDA growth and profitability which may be overly optimistic.
CFRA highlighted that a year ago, they expected EBITDA to show significant growth in 2024, but current consensus estimates of $9.9 billion for 2024 fall short of the actual EBITDA of $10.2 billion reported in 2023. Furthermore, the consensus estimate for 2025 is $10.4 billion, which represents less than 5% EBITDA growth. This, the firm suggests, indicates that the market has less patience for Warner Brothers Discovery to successfully transition its linear networks to the MAX streaming platform.
Warner Brothers Discovery reported modest gains in streaming subscribers in the first quarter of 2023 and concluded the year with 97.7 million direct-to-consumer (DTC) subscribers. The breakdown showed a 5% year-over-year decrease in domestic subscribers to 52.0 million, while international subscribers increased by 7.8% to 45.6 million.
The firm noted that a potential positive catalyst for Warner Brothers Discovery could be the sale of non-core assets that do not align with its core strategy. This move could help in reducing the company's significant total debt, which stands at $43.6 billion.
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