Paramount, Warner Bros. see rating cuts at Wolfe
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Update: The article was updated to include rating action by Wolfe Research on Warner Bros. Discovery.
Wolfe downgraded Paramount Global (NASDAQ:PARA) to Underperform from Peer Perform with a price target of $14 per share.
Paramount Global: Wolfe analysts noted that the highest exposure to non-sports linear advertising revenue in its Diversified Entertainment coverage space, Paramount is worst positioned for a secular downturn in the linear ad market, with every ad dollar lost materially eroding OIBDA.
To that end, Wolfe's 2024 revised estimates for Paramount's linear advertising of $8.6B is -6% below consensus, however translates to a -11% impact to its OIBDA estimate of $2.5B.
With Wolfe's forecast that the upfronts fall short of expectations, driving an estimate revision reset, the firm sees downside to expectations and an opportunity for Paramount's stock to underperform into the backhalf of the year.
Warner Bros. Discovery: Wolfe also cut Warner Bros. Discovery's (WBD) rating to Peer Perform from Outperform.
The analysts noted that the risk of a significant TV advertising downturn is imminent, and Warner is highly geared to it. The firm added that Warner has secular problems, but now estimates look risky while EV has barely moved. 
The firm downgrade Warner to Peer Perform versus Underperform rated Diversified Entertainment.
The analysts noted that highly leveraged, Warner's near-term equity performance relies upon achieving near-term guidance that looks challenging.
The analysts added that the linear advertising industry is under pressure and Warner is highly exposed. Warner's linear advertising estimate by Wolfe is now -12% below consensus for CY24E with EBITDA that is -4% below consensus.
Warner was previously the only Outperform rated media network in the firm's coverage, and though the analysts think Warner is attractive on a relative basis, they find it prudent to have no Outperform ratings in this sub-sector currently given rising TV advertising risks.
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