CNN looks undervalued amid WBD spinoff chatter, Benchmark says
Anna Moneymaker
Benchmark has weighed in on CNN deal talk that at least seemed to move Warner Bros. Discovery stock (NASDAQ:WBD) on Monday's short trading session -- and concluded that at the least, the chatter points to chronic undervaluation of the news organization.
Recent gossip points to the prospect that former CNN chief Jeff Zucker -- ousted last year over an undisclosed employee relationship -- would make a play for CNN via his RedBird IMI venture (a linking of RedBird Capital Partners and Abu Dhabi's International Media Investments).
While there's no specific information, Zucker is said to be looking at a number of media assets, which could include CBS if Paramount (PARA) (PARAA) elected to sell the broadcast network (possibly as part of a plan to merge Paramount with NBC parent Comcast (CMCSA)).
Zucker's purchase plans could be complicated in a political sense, though, by the heavy foreign investment, analyst Matthew Harrigan said.
"Any foreign bid for CNN would certainly necessitate an extended CFIUS review especially as more than 25% would likely be directly or indirectly funded (via UAE involvement in Zuckerâs RedBird IMI investment fund) by the UAE â with RedBird having formalized plans for a JV with Abu Dhabiâs International Media Investments," Harrigan said.
But meanwhile, an idea to add live CNN programming to WBD's Max streaming service would help raise the appeal of the streamer, though it would call for heavily revised cable/satellite carriage agreements, he said.
"In our view Warner Bros. Discovery (WBD) would have to consider any fully financed mid-single digit billion bid for CNN, although this could be complicated by the above foreign ownership considerations," Harrigan said -- a valuation that's "very tenable" if you believe reports that CNN logged $750M in 2022 operating profit even counting a $200M loss from the failed CNN+ streaming service.
"Any confirmation of CNN private market value in this vicinity is very positive for WBDâs stock price," Harrigan says. Meanwhile, the Warner Bros. studio is even more discounted in WBD's stock price after letdowns from Shazam! Fury of the Gods and The Flash, though he says those DC disappointments came from the prior regime and there's confidence in the new one.
He holds a Buy rating on WBD stock with a target price of $26, implying a doubling in the stock (102% upside).
More on Warner Bros. Discovery

Box office in 2023: Disney, Universal duke it out while Warner lags
HBO's 'Insecure' on Netflix, as licensing deal moves forward
Potential double strike adds another twist to the Hollywood drama
Warner Bros. Discovery in talks for $500M sale of half of music publishing assets