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On Friday, KeyBanc Capital Markets reiterated its Overweight rating on Warner Brothers Discovery (NASDAQ:WBD) with a steady price target of $14.00. The stock, currently trading at $11.46, has shown strong momentum with a 40% gain over the past six months, according to InvestingPro data. The firm’s analyst, Brandon Nispel, highlighted a mix of results in the company’s recent performance, noting a slight decline in revenue by 2.5% due to weaker content and advertising sales. However, this was counterbalanced by a 10.2% increase in adjusted EBITDA, attributed to stronger performance across all segments.
Nispel pointed out the potential benefits of Warner Brothers Discovery losing the NBA broadcasting rights, considering it a material positive through to 2026. He also expressed confidence in the company’s direct-to-consumer (DTC) segment, anticipating an adjusted EBITDA margin increase towards 20%, which surpasses that of its peers. The company’s current EBITDA stands at $7.06 billion, with total revenue of $39.32 billion for the last twelve months. The analyst believes the goal of reaching 150 million DTC subscribers by 2026 is achievable.
The performance of Warner Brothers Discovery Studios is also expected to see significant improvement. Nispel anticipates better licensing agreements, fewer write-offs in gaming, and a robust theatrical release schedule to contribute positively. Additionally, he suggested the possibility of spinning off linear networks, which, coupled with improvements in Studios and DTC segments, could lead to EBITDA growth in 2025 and 2026.
Nispel concluded by emphasizing the stock’s current undervaluation, with shares trading at approximately 6.6 times earnings, which is below the 10-year average of around 8 times. This valuation gap indicates a potential upside for investors, according to KeyBanc’s analysis. InvestingPro analysis supports this view, with the stock currently trading below its Fair Value. Investors can access detailed valuation metrics, 8 additional ProTips, and comprehensive financial analysis through the Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Warner Bros Discovery reported its fourth-quarter 2024 earnings, revealing a miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of -$0.20, falling short of the anticipated -$0.001, and revenue came in at $10.02 billion, slightly below the forecasted $10.24 billion. Despite these results, the company saw growth in its direct-to-consumer segment, adding 6.5 million subscribers and significantly improving its DTC EBITDA, which contributed nearly $700 million. Analysts at Bernstein have raised the price target for Warner Bros Discovery shares from $9.00 to $11.00, maintaining a Market Perform rating, while Raymond (NSE:RYMD) James increased its target to $14.00, keeping an Outperform rating. The adjustments in targets reflect confidence in the company’s strategic shift towards streaming services and its valuable intellectual properties. Looking ahead, Warner Bros Discovery aims for $1.3 billion in DTC EBITDA by 2025, with a target of reaching 150 million subscribers by 2026. The company continues to focus on leveraging its robust asset portfolio, including franchises like DC Comics and Harry Potter, to drive future growth.
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