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Investing.com -- TD Cowen cut its rating on Warner Bros. Discovery to Hold from Buy, saying the stock’s sharp rally on takeover speculation has pushed it well beyond fair value.
The firm kept its $14 price target on the company’s shares.
“Warner Bros. Discovery shares have surged well beyond our $14 price target following last week’s unsubstantiated report that Paramount Skydance may be considering a bid for the company,” TD Cowen analysts wrote.
“While PSKY may come in with a $20+ bid, we don’t love the risk-reward here given the potential for WBD shares to quickly round-trip to $11-$12 if the bid doesn’t materialize.”
The bank said the report on the potential deal “lacks concrete details or confirmation from any of the parties involved.”
Analysts added: “Sometimes the best move is to admit you don’t have a particular edge on a situation and move to the sidelines; that is what we are doing here.”
TD Cowen said the rationale for a Paramount Skydance acquisition of WBD would be “at least as much political as business-related,” with regulatory approval likely if a bid emerged.
However, hurdles remain, and the firm sees limited alternative suitors. “We think the regulatory hurdles for Comcast would be much higher than for PSKY, given Trump’s animosity towards most legacy media companies; the capital commitment required for a deal is probably too much for Sony; and we don’t expect to see other large tech companies choosing to compete with PSKY,” analysts wrote.
“Given the speculative nature of the current rally and the elevated risk profile at these levels, we are downgrading WBD from Buy (1) to Hold (2) while maintaining our $14 price target,” the note said.