Comcast (CMCSA) and Paramount (PARA) are scheduled to announce quarterly results on January 25 and February 16, respectively, with Warner Bros. Discovery (WBD) expected to report earnings not long after. What to watch for:
STOCK OVERSOLD: Earlier this month, Truist upgraded both Comcast (CMCSA) to Buy from Hold with a price target of $50, up from $34. The firm told investors that it believes the risks facing the company from fixed wireless and fiber are now "well understood," leaving the shares oversold. While investors in 2022 recognized that broadband flow share trends fundamentally changed, efforts to stem the erosion are proving successful and should once again cause the stock to trade at a traditional premium to telecom stocks, Truist says.
Back in December, Wells Fargo had upgraded Comcast to Equal Weight from Underweight with a price target of $38, up from $30. The firm was "less negative" on the company's cable outlook with slower EBITDA growth but also "clearer capex." However, Wells was "more negative" on NBC Universal and is below Street estimates on free cash flow. Net/net, Wells+ now thinks Comcast is "de-risked" and sees fair value at $38 per share. "While broadband competition is increasing, it's not creating all the bad trends we had feared," the firm added.
80% UPSIDE: Atlantic Equities reiterated an Overweight rating on Warner Bros. Discovery saying an analysis shows a direct-to-consumer merger could be largely revenue neutral. An HBO Max/Discovery+ direct-to-consumer merger can be largely revenue neutral, the firm tells investors in a research note. Atlantic Equities’ analysis still suggests 80% upside to shares of Warner Bros. Discovery from current levels. It assumed the U.S. merger will see the immediate loss of 4M subscribers that currently take both services, along with 40% of Discovery+ subscribers being unwilling to accept a more than doubling in their monthly fee. However, the step up in Discovery+ average revenue per user can largely offset this churn and means the merger will be largely revenue neutral, Atlantic contends. The firm keeps a $22 price target on shares of Warner Bros.
ATTRACTIVE NARRATIVE: Earlier this month, Guggenheim upgraded Warner Bros. Discovery to Buy from Neutral with a $16.50 price target, which represented 31% potential upside. The firm sees "an attractive narrative" for the first half of 2023 given recently announced domestic affiliate renewals, strong cost controls, and the upcoming launch of a restructured Max product. While a challenging ad environment and continued cord-cutting are ongoing secular pressures, cost discipline at direct-to-consumer should boost confidence in the company's ability to meet consensus 2023 EBITDA estimates and its own debt lowering goals, Guggenheim contended.
TARGET RAISED AHEAD OF EARNINGS: Guggenheim also raised the firm's price target on Paramount to $22 from $20, while keeping a Buy rating on the shares after updating its model to reflect a more modest Q4 direct-to-consumer loss than previously modeled driven by a full quarter of the Walmart+ (WMT) partnership, recent international market launches and content strength. The firm’s unchanged Q4 streaming subscriber outlook of 75.0M, including 54.0M for Paramount+, remains ahead of consensus at 73.3M.
DECLINING EARNINGS: More bearish on Paramount, Loop Capital downgraded Paramount to Sell from Hold last month, with a price target of $14, down from $30. The firm cited the company's exposure to the "rapidly declining" traditional linear TV business while noting that its path to profitability in Streaming is "unclear." Although Paramount's content cycle is "strong," the company's earnings and cash flow are declining, its leverage is growing, and its dividend exceeds free cash flows, the firm says.