Warner Brothers Discovery (WBD) PT Lowered to $12 at Raymond James

Raymond James analyst Ric Prentiss lowered the price target on Warner Brothers Discovery (NASDAQ: WBD) to $12.00 (from $13.00) while maintaining a Outperform rating.

The analyst comments "We reiterate our Outperform rating on WBD but lower price target to $12 from $13 following 1Q25 results (detailed HERE) including a beat on Adj. EBITDA but miss on revenue, with DTC strong but Studios below even the lowered expectations, however Studios should bounce back very strongly in 2Q driven by Minecraft. We reduce our Adj. EBITDA estimates as the company more clearly communicated the overlapping sports costs impacting 2025, and while NBA costs will drop after 2025, the new incremental costs are higher than we had modeled. Nonetheless, the stock traded up given CNBC reports that WBD is moving toward splitting up the Linear Networks from Studios & Streaming. Bigger picture, we believe WBD has a very strong set of assets, chief among them a Tier One portfolio of IP including DC Comics, Harry Potter, Lord of the Rings (LOTR), Game of Thrones, etc. that should be the backbone of all WBD segments. The company’s leverage and significant exposure to Linear TV are clearly concerns (hence Outperform not Strong Buy), but with continued FCF generation, we feel concerns on leverage are exaggerated. And with DTC growing revenues and cash flows (guidance of at least $1.3B EBITDA in 2025, including linear HBO), and other assets like the underappreciated WB Games business, we see longer-term upside at this low ~5x FCF valuation and potential for capital returns at some point."

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