BofA maintains Warner Brothers Discovery stock Buy rating

On Friday, BofA Securities analysts, led by Jessica Reif Ehrlich, maintained a Buy rating on Warner Brothers Discovery (NASDAQ:WBD) shares, with a steady price target of $14.00. The stock, currently trading at $9.16, has experienced significant pressure, dropping nearly 12% in the past week. According to InvestingPro analysis, the company appears undervalued, with analysts setting targets ranging from $9 to $22. The analysts expect the company’s first-quarter earnings to align with broader industry trends, noting particular challenges and strengths within different segments of the business.

Warner Brothers Discovery’s linear business continues to face headwinds, although sports advertising remains a strong point. With annual revenue of $39.32 billion and an EBITDA of $7.67 billion, the company maintains its position as a prominent player in the entertainment industry. General entertainment advertising is experiencing weakness. The analysts highlighted that Connected TV (CTV) advertising is robust, bolstered by strong engagement on the Max platform and the scaling up of its advertising-supported video on demand (AVOD) tier. Want deeper insights? InvestingPro offers 8 additional exclusive tips about WBD’s performance and prospects.

Looking ahead, the analysts anticipate advertising will face tougher comparisons in the second quarter due to the Final Four NCAA basketball games being aired on CBS instead of Warner Brothers Discovery’s TBS network this year. Additionally, fourth-quarter advertising revenue is expected to be negatively affected by the loss of National Basketball Association (NBA) broadcasts.

In the Studios segment, while the analysts project an improvement in the first quarter of 2025 compared to the previous year, which saw a $200 million loss in gaming, they also foresee a decline in revenue due to a weaker theatrical and gaming slate compared to the prior year.

The analysts noted that macroeconomic uncertainty and market volatility are obscuring the advertising market’s outlook for the entire industry. Operating with a moderate debt level and a current ratio of 0.89, the company faces some financial challenges. As a result, BofA Securities has adjusted its first-quarter revenue estimate for Warner Brothers Discovery to $8.9 billion, down from the previous $9.68 billion projection. The adjusted EBITDA forecast has been slightly revised to $2.05 billion from $2.02 billion. For comprehensive financial analysis and detailed metrics, explore WBD’s complete profile on InvestingPro, including the exclusive Pro Research Report available for 1,400+ top stocks.

In other recent news, Warner Bros. Discovery has been actively making changes to its board of directors, adding Anton Levy, former co-president of General Atlantic, in response to pressure from activist shareholder Sessa Capital. This move comes as part of a broader effort to enhance corporate governance and explore strategic options, including potential asset sales or spin-offs. In another development, Raymond (NSE:RYMD) James has adjusted its price target for Warner Bros. Discovery shares from $14.00 to $13.00 while maintaining an Outperform rating. The adjustment precedes the company’s upcoming first quarter 2025 earnings report amidst market challenges.

Additionally, Warner Bros. Discovery has decided to cancel the expansion of its popular video game, Hogwarts Legacy, due to concerns over content volume and pricing justification. This decision aligns with the company’s ongoing reorganization of its video game unit. Meanwhile, the company has completed its reorganization into two operating units, focusing separately on traditional cable TV and streaming and studios, to adapt to industry shifts. These actions reflect Warner Bros. Discovery’s strategic maneuvers in response to evolving market conditions and internal assessments.

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