By Sam Boughedda
Wells Fargo analysts downgraded shares of Paramount Global (NASDAQ:PARAA) to Underweight from Equal Weight, cutting the firm's price target on the stock to $13 from $19 per share.
The analysts said the firm can no longer justify Paramount's premium multiple amid its more pessimistic view on linear trends and an uncertain DTC outlook.
"PARA is trading at ~8.5x our CY23E EBITDA vs WBD at 7x, FOXA at 6x, and AMCX at 5x, and it's even more expensive on P/FCF. We do see opportunities for PARA to unlock value, but don't think they're currently under consideration. We anchor PARA's valuation to its Media comps at 7x EV/EBITDA, which = $13/sh," they wrote.
Wells Fargo downgraded PARA to Equal Weight just a few weeks ago, but they said that since then, their "views have already worsened." However, if the company performed a strategic shift, it would make Wells Fargo more positive.
"While management is largely playing the hand it was dealt, we think PARA either needs to shift its strategy or accept valuations closer to WBD and FOXA. PARA's content is undoubtedly valuable, but self-distributing via DTC that may not scale devalues it since it doesn't monetize as effectively. We struggle to value DTC without a clear path to solid profitability," the analysts added.
Paramount shares are down 5% in early Monday trading.