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Walt Disney
and
Warner Bros. Discovery
stocks are buys following a turbulent few years for streaming stocks, says one Raymond James analyst who isn’t as bullish on
Paramount Global.
Analyst Ric Prentiss initiated coverage of
Disney
(ticker: DIS) and Warner Bros. (WBD) with Outperform ratings, and Paramount (PARA) with a Market Perform rating on Sunday. Prentiss wrote in a research note that after a difficult few years for these companies that have had to learn that the business of streaming is different than traditional television, the growth ahead is now attractive enough to get in on.
“While sentiment around the space has been quite negative for several quarters, we believe the expected cash flow growth is compelling and that there are opportunities for attractive shareholder returns in media, particularly given that valuations have come down significantly,” Prentiss wrote.
Streaming has become a popular way for people to consumer their favorite media, but the industry has faced many challenges over the past few years. Economic pressures have hit the advertising business, with media companies across the board citing soft ad revenue in recent quarters. Hollywood strikes have also become a top concern as shows and movies postpone production and release dates.
With these concerns in mind, Prentiss initiated Disney stock with a $97 price target.
“Disney is bundling its services, driving higher Average Revenue Per Account, lower churn, and strong pricing power,” Prentiss wrote. He added that the intellectual properties held by the entertainment giant, including Marvel, Star Wars, Pixar and more, will continue to help drive all of the company’s business units.
Prentiss also initiated coverage of Warner Bros. stock with a $19 price target.
“We believe the WarnerMedia-Discovery merger has brought together two complementary streaming services (HBO Max and Discovery+) and created additional scale through the Max integration, and we think should drive better subscriber acquisition, lower churn, and stronger pricing power,” Prentiss wrote.
Disney stock is up 0.2% in premarket trading Monday to $85.70 while Warner Bros. stock is flat at $11.84.
He added that Warner Bros. also has a strong backbone of intellectual properties, like Harry Potter, Game of Thrones and Lord of the Rings films, which will should help drive subscriptions and further revenue.
Prentiss isn’t as bullish on Paramount stock, and doesn’t have a price target. The analyst believes that Paramount is the most exposed traditional linear TV.
“Linear TV has been the cash-cow funding much of the media companies’ investments in streaming, and while it has been very profitable for many years, the business is in continued secular decline,” he wrote. “Linear TV’s declines should be a drag to growth that partially counters improvements in streaming cash flows.”
Paramount stock is flat in the premarket session at $14.06.
Write to Angela Palumbo at [email protected]
Read the full article here
