Valued at a market cap of $25.6 billion, Warner Bros. Discovery, Inc. (WBD) is a global media and entertainment company that creates and distributes a diverse portfolio of content across television, film, and streaming platforms. With renowned brands such as HBO, CNN, Discovery Channel, and DC, it offers premium content through various segments, including Studios, Networks, and Direct-to-Consumer services.
Shares of the New York-based company have underperformed the broader market over the past 52 weeks. WBD has risen 4.4% over this time frame, while the broader S&P 500 Index ($SPX) has gained 22.6%. On a YTD basis, WBD is down marginally, lagging behind SPX's 2.7% gain.
Narrowing the focus, the operator of cable TV channels has also underperformed the Communication Services Select Sector SPDR ETF Fund's (XLC) 31.8% rise over the past 52 weeks and 5.9% increase on a YTD basis
Despite reporting weaker-than-expected Q3 revenue of $9.6 billion, shares of WBD surged 11.8% on Nov. 7 as the company posted an EPS of $0.05, significantly outperforming analysts' expectations. Investors were encouraged by the 7.2 million sequential increase in global direct-to-consumer (DTC) subscribers, along with an 8% year-over-year rise in DTC revenues. Additionally, advertising revenues in the DTC segment surged 51%, driven by growth in ad-lite subscribers. Lastly, WBD’s debt reduction efforts, including repaying or repurchasing debt during the quarter, reassured investors about financial stability.
For fiscal 2024, which ended in December, analysts expect WBD to report a loss of $4.33 per share, a significant year-over-year decline. The company's earnings surprise history is mixed. It beat the consensus estimates in one of the last four quarters while missing on three other occasions.
Among the 25 analysts covering the stock, the consensus rating is a “Moderate Buy.” That’s based on 11 “Strong Buy” ratings, one “Moderate Buy,” and 13 “Holds.”
This configuration is slightly more bullish than three months ago, with 10 “Strong Buy” ratings on the stock.
On Jan. 13, Guggenheim reaffirmed its “Buy” rating on WBD with a $14 price target, citing strong cash flow and a higher Q4 EBITDA forecast. WBD's restructuring into two divisions is expected to enhance strategic flexibility and shareholder value.
As of writing, WBD is trading below the mean price target of $12.24. The Street-high price target of $18, implies a potential upside of 72.6% from the current price levels.
