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Investing.com - Bernstein has reiterated its Market Perform rating and $11.00 price target on Warner Brothers Discovery (NASDAQ:WBD), currently valued at $27.07 billion, as the company progresses toward splitting into two entities. According to InvestingPro data, WBD shows a strong free cash flow yield, though its short-term obligations currently exceed liquid assets.
According to Bernstein, WBD’s bond tender is expected to close within a week, moving the company closer to its planned separation into Streaming & Studios (S&S) and Global Networks (GN) divisions. While some details like final debt allocation and GN’s ownership stake in S&S remain to be finalized, these appear to be procedural matters rather than obstacles.
Investor focus is reportedly shifting from accounting details to strategic questions about the future of both entities, particularly after the disclosure that S&S is expected to reach cash flow breakeven by the time of the split. Bernstein notes that investors are examining the EBITDA-to-FCF bridge and implications for S&S’s free cash flow profile post-separation.
The research firm believes the absolute level of free cash flow for S&S as a standalone entity is less important in the near term than demonstrating a path to growing profitability and FCF. Bernstein suggests the more relevant question concerns which companies in the media sector have both the vision and financial capacity to potentially acquire premium assets.
Bernstein concludes that potential buyers focused solely on securing a bargain or requiring immediate FCF to justify a premium price "are probably not the right buyer for S&S."
In other recent news, Warner Bros. Discovery announced pricing terms for cash tender offers by its subsidiaries to purchase outstanding notes and debentures, with several series subject to proration due to high participation rates. The company plans to settle accepted notes by June 30, 2025, contingent on certain conditions. Additionally, Warner Bros. Discovery has signed new employment agreements with CEO David Zaslav and CFO Gunnar Wiedenfels, aligning with its strategic reorganization to separate its Streaming & Studios division from its Global Networks division. The agreements are designed to ensure leadership continuity as the company transitions into two publicly traded entities.
Fitch Ratings downgraded Warner Bros. Discovery to ’BB+’ from ’BBB-’ following the announcement of this separation, citing concerns about the company’s future credit profile and elevated leverage. Benchmark has added Warner Bros. Discovery to its Best Ideas List, maintaining a Buy rating and an $18.00 price target. The firm expressed optimism about upcoming film projects and HBO Max’s performance in the streaming market. Warner Bros. Discovery also intends to exercise its early settlement right for its cash tender offers, with settlement expected on June 30, 2025, subject to necessary conditions.
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