Combining and relaunching the HBO Max and Discovery+ services as well as cutting costs can be tough for WarnerMedia.
Dreamstime
Investors should buy Warner Bros. Discovery stock because the market has yet to assign value to its streaming segment, Goldman Sachs analysts said Tuesday. But they cut their rating on Paramount Global stock to Sell, saying rising competition is likely to raise doubts among investors about its long-term potential.
Analyst Brett Feldman and his team put a price target of $22 on Warner Bros Discovery stock (ticker: WBD) while reinstating a Buy rating on the shares.
The bank’s Sell call on Paramount (PARA) was a downgrade from Buy. Goldman lowered its target for the share price to $20 from $37. Paramount didn’t immediately respond to a request for comment from Barron’s.
Warner Bros. merged with Discovery to create Warner Bros. Discovery in a deal that closed in April. A streaming service combining both companies’ offerings that the merged business plans to offer is likely to be a positive for the stock, Feldman said, but a variety of factors could prevent Paramount from following through on its streaming strategy.
Warner Bros. Discovery stock has fallen almost 40% since the start of the year as investors sold the stock in response to news that subscriber numbers fell at Netflix (NFLX). Paramount stock is down by 20% this year.
Feldman is sure about the upside for Warner Bros. Discovery stock. The merger of Discovery and WarnerMedia positions the combined company to achieve significant scale as a global streamer, while also achieving substantial savings, he said in his note.
Combining and relaunching the HBO Max and Discovery+ services, not to mention cutting costs, could be challenging in the current tough economic environment, but those “risks are more than fully reflected in the stock,” Feldman said.
For Paramount, Feldman said, it is key for the company to scale up its investment on content to compete with Walt Disney (DIS), Netflix , and others, but that any number of factors could prevent it from meeting its goal of spending more than $6 billion in 2024, compared with $2.2 billion in 2021.
Write to Karishma Vanjani at [email protected]
