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On Thursday, Raymond (NSE:RYMD) James made an adjustment to Warner Brothers Discovery’s (NASDAQ:WBD) financial outlook, reducing the price target from $13.00 to $12.00 while maintaining an Outperform rating. Currently trading at $9.00, the stock sits between its 52-week range of $6.64 to $12.70. According to InvestingPro analysis, the company appears fairly valued at current levels. The adjustment follows the company’s first-quarter results for 2025, which revealed a stronger-than-expected adjusted EBITDA of $7.67 billion but a shortfall in revenue. The direct-to-consumer (DTC) segment showed robust performance, but the Studios division fell short of already lowered expectations. Despite this, the analyst anticipates a significant rebound in the Studios segment in the second quarter, driven by the release of "Minecraft."
The revised price target and financial estimates come as Warner Brothers Discovery provided more clarity on the overlapping sports costs that are affecting the company’s financials for 2025. With a market capitalization of $22.3 billion and an overall Financial Health score of "FAIR" from InvestingPro, the company faces some challenges. Although NBA-related costs are expected to decrease after 2025, new incremental costs have turned out to be higher than initially projected by Raymond James. Nevertheless, the company’s stock experienced an uptick following reports from CNBC suggesting that Warner Brothers Discovery is considering a separation of its Linear Networks from its Studios and Streaming divisions.
The analyst highlighted Warner Brothers Discovery’s strong asset portfolio, which includes top-tier intellectual properties like DC Comics, Harry Potter, Lord of the Rings, and Game of Thrones. InvestingPro identifies WBD as a "Prominent player in the Entertainment industry," with annual revenue of $39.3 billion. These assets are considered to be fundamental to the company’s various business segments. While concerns about the company’s leverage and significant reliance on linear television were noted, the analyst believes these worries may be overstated, especially given the company’s continued generation of free cash flow (FCF). InvestingPro subscribers have access to 5 additional key insights about WBD’s market position and growth potential.
Warner Brothers Discovery’s growing DTC revenues and cash flows, with a projected EBITDA of at least $1.3 billion in 2025 that includes linear HBO, were seen as positive indicators. The analyst also pointed out the potential of the WB Games business, which may be undervalued. The company’s strong free cash flow yield and EV/EBITDA multiple of 7.8x support this view. With the company trading at approximately 5 times FCF valuation, Raymond James sees a potential for longer-term upside and the possibility of capital returns in the future. For detailed analysis of WBD’s valuation metrics and comprehensive financial health assessment, investors can access the full Pro Research Report on InvestingPro.
In other recent news, Warner Bros. Discovery reported its earnings for the first quarter of 2025, with results falling short of expectations. The company disclosed an earnings per share (EPS) of -$0.18, missing the anticipated -$0.13, and revenue of $8.98 billion, which was below the forecasted $9.59 billion. Despite these financial misses, Warner Bros. Discovery experienced significant subscriber growth, adding over 5 million new subscribers during the quarter. The company is also on track to achieve $1.3 billion in EBITDA for its streaming services by the end of 2025. Strategic restructuring has been a focus, with the company organizing into two main subsidiaries: Streaming and Studios. Analyst reactions have been varied, with firms like Wells Fargo (NYSE:WFC) and Deutsche Bank (ETR:DBKGn) offering insights into the company’s strategic direction. Warner Bros. Discovery continues to emphasize quality content and global expansion, aiming to reach 150 million subscribers by the end of next year.
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