On Thursday, Guggenheim maintained a positive outlook on Warner Brothers Discovery (NASDAQ: NASDAQ:WBD), increasing the stock's price target to $12.50 from the previous $11.00 while keeping a Buy rating. The stock, currently trading at $10.82 with a market cap of $26.6 billion, has shown strong momentum with a 38.5% gain over the past six months.
The adjustment comes after Warner Brothers Discovery finalized a multi-year, multi-market distribution agreement with Comcast (NASDAQ:CMCSA), prompting the analyst to revise their financial model to reflect the estimated impacts of the deal. According to InvestingPro analysis, WBD currently appears undervalued based on its Fair Value assessment.
The analyst noted that the updated model now includes higher Networks Distribution revenue forecasts for 2026 and 2027. This change is due to the removal of the previous assumption that there would be a reduced per-subscriber carriage fee after the loss of NBA game content starting with the 2025-26 season.
Additionally, the analyst raised Direct-to-Consumer (DTC) subscriber estimates for 2026, anticipating a boost from a new Max distribution agreement with Sky. InvestingPro data shows the company maintains a "GOOD" overall financial health score, with particularly strong ratings in price momentum and relative value metrics.
In terms of advertising revenue, the estimated annual NBA advertising estimate was increased to $600 million, up from the previous $450 million. This revision is expected to lower advertising revenue estimates beginning in late 2025. Moreover, the analyst slightly reduced DTC and Studio Content revenue forecasts, taking into account lower licensing revenue from Sky. This adjustment is attributed to a shift to certain co-exclusive arrangements and foregone distribution related to the new Max agreement.
The revised financial outlook also includes a raised Adjusted EBITDA forecast, with a 2% increase for 2026 and an 8% rise for 2027. The company's current EBITDA stands at $7.1 billion for the last twelve months. The higher price target of $12.50 reflects not only the upgraded estimates but also an expansion of the valuation multiple.
The analyst emphasized that the improved visibility of Distribution revenue, secured by the recent carriage renewal, was a significant factor in the revised target. For deeper insights into WBD's valuation and growth prospects, investors can access the comprehensive Pro Research Report, along with 10+ additional ProTips, available exclusively on InvestingPro.
In other recent news, Warner Brothers Discovery has seen several significant developments. The company has secured a major distribution renewal agreement with Xfinity in the U.S. and Sky UK, extending the reach of its linear networks and integrating the ad-supported video on demand versions of Max and Discovery+ into Xfinity's streaming offerings. This development was followed by Benchmark maintaining a Buy rating on Warner Brothers Discovery, with a price target of $18.00.
KeyBanc Capital Markets also maintained an Overweight rating on the company, raising their price target to $14.00 from the previous $11.00. This adjustment reflects the firm's growing confidence in the company's potential for higher profitability in its Studios and Direct-to-Consumer segments.
Warner Brothers Discovery also launched two new advertising solutions, Shop with Max and Moments, powered by KERV.ai's technology. These solutions aim to enhance the streaming experience by integrating shoppable content.
Wolfe Research upgraded Warner Brothers Discovery's stock from Underperform to Peer Perform, citing potential benefits from industry trends and growth of the company's Max streaming service internationally. On the other hand, Macquarie raised its stock target to $9.00 following the company's first positive GAAP Operating Income and net income since its merger in 2022, despite a 3.6% decline in Q3 2024 revenue.
Lastly, the company remains optimistic about the Studio's profit rebound in 2025, driven by improved film performance, TV production momentum, and a recovery in gaming. The company has also reduced its debt by over $16 billion and aims to exceed a target of $1 billion in EBITDA by 2025.
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