Discovery upgraded at BofA, price target boosted, as risk-reward situation is now 'extremely favorable'
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Discovery (NASDAQ:DISCA) is getting an upgrade and price target boost from Bank of America, as the investment firm believes the risk-reward situation has become "extremely favorable" and the pending merger with WarnerMedia (NYSE:T) could make the combined company "a global media powerhouse."

Analyst Jessica Reif Ehrlich raised her rating to buy and price target to $45, noting that the combined companies have "highly complementary assets," with WarnerMedia having "best in class film and TV studios," while Discovery (DISCA) has "notable strength" in lifestyle, reality-TV and unscripted brands.
"As a combined entity, we believe Warner Bros. Discovery has the potential to be the most dynamic global media company," she wrote in an investor note. "Trading at [less than] 8x PF CY23E OIBDA we believe the risk/reward for DISCA is extremely favorable, notwithstanding the near term technical overhang related to the merger, as we approach the anticipated 1H22 closing date."
Discovery (DISCA) shares were up more than 4% to $26.78 in early Friday trading.
Reif Ehrlich added that there is the potential for revenue and cost synergies as Discovery (DISCA) and WarnerMedia (T) merge, and it's likely that the $3 billion in cost synergies that Discovery mentioned is "highly achievable, if not conservative."
On the top line, she believes there could be "incremental revenue opportunities," such as advertising, distribution, pricing and the potential to drive healthy [free cash flow] by optimizing working capital and reducing DSOs."

The streaming landscape has "intensified" over the past year, as Netflix (NASDAQ:NFLX), Disney+ (NYSE:DIS), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) all accelerate their spending on content, but success is likely to steam from the global direct-to-consumer strategy, Reif Ehrlich believes.
"It is our view [Warner Bros Discovery] will eventually combine to one service (vs. bundle) which enhances the depth and breadth of content offerings, reduces churn, increases [Lifetime Value] and improves [Go-to-market] efficiencies. The merger also provides WBD enough financial capacity to invest in content globally."

On Wednesday, a report suggested that the merger between Discovery (DISCA) and WarnerMedia (T) may close in approximately three months.