Paramount dips 4% as Goldman Sachs cuts to Sell from Buy on near-term hurdles
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Paramount Global is sinking Tuesday - (NASDAQ:PARA) -4.4%, (NASDAQ:PARAA) -3.9% - after a double downgrade at Goldman Sachs, which has cut the media company to Sell from Buy.
That reflects a view that increasing macroeconomic headwinds are putting more pressure on the company's core profitability and free cash flow, at least through 2023.
And that boosts the risk that Paramount can execute its streaming strategy in an increasingly competitive market, analyst Brett Feldman said.
"We have not changed our view that PARAâs rich IP and scaled content production assets could support a sizable streaming business, over time," he said. "However, we believe the market is unlikely to underwrite this long-term potential as the near-term operating environment becomes more difficult."
There's limited near-term valuation support given that Paramount already trades at a premium to media peers, he says: about 12.5x 2023 enterprise value-to-EBITDA, vs. 6x-9x for comparable names.
He's cut his price target on PARA to $20 from $37, now implying 17% further downside.
Meanwhile, he's reinstated Warner Bros. Discovery (NASDAQ:WBD) at Buy, saying the Discovery/WarnerMedia merger has set up the company to achieve "material scale" as a global streaming name while still fortifying its linear networks business and enjoying cost synergies. Execution risk is already reflected in the stock price, he said.
He's cut his 2024 Disney+ (NYSE:DIS) subscriber estimate to 223M from a previous 242M to reflect Disney's loss of Indian Premier League streaming rights.
And a broad cut of linear TV advertising revenue forecasts - by 1.5%-3% for calendar 2022, and by 4.5%-6% for 2023 - leads to lower price targets for Disney (DIS, to $130 from $148), AMC Networks (AMCX, to $34 from $39) and Fox (FOXA, to $30 from $32) as well.
Streaming video as of this month captures more than a third of television usage, and is closing in on cable for the top use of TVs.