17 Mar Wells Fargo upgrades Warner Bros. Discovery
The risk-reward is improving for shares of Warner Bros. Discovery as the media company focuses on deleveraging and maximizing free cash flows, Wells Fargo said. Analyst Steven Cahall upgraded the media stock to overweight from an equal weight rating, citing growing confidence in the company’s ability to reduce its debt. “We’ve stress tested the downside and expect WBD to succeed in deleveraging, and at a modest multiple that’s what should create the equity upside,” he wrote in a Friday note to clients. Shares of Warner Bros. Discovery, created through a merger between WarnerMedia and Discovery, have rebounded more than 49% in 2023, after plummeting about 60% in 2022. Shares gained nearly 3% before the bell. And even with the stock’s solid run this year, Cahall sees more upside ahead, lifting his price target to $20 from $13 a share. That implies 41% upside from Thursday’s close. “We threw everything and the kitchen sink at a Downside Case scenario for WBD, and it still delevers to 3x by ’25E,” he wrote. “We now have conviction in FCF to limit downside, while the stock has asymmetric upside.” WBD YTD mountain Warner Bros. Discovery shares so far this year Improvement within the company’s direct-to-consumer business and consolidation should also provide upside potential ahead, Cahall said. He also views this segment as undervalued relative to peers given the “near-term break-even and future profit ramp.” “The new WBD is emerging with strong FCF, a tactical approach, greater command and control, and excellent HBO content,” Cahall wrote. — CNBC’s Michael Bloom contributed reporting