UBS Downgrades Discovery Communications (DISCA) to Sell; 'Streaming upside more than priced in'
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(Updated - March 23, 2021 8:32 AM EDT)
UBS analyst John Hodulik downgraded Discovery Communications (NASDAQ: DISCA) from Neutral to Sell with a price target of $46.00 (from $24.00).
The analyst commented, "We are downgrading DISCA to Sell from Neutral as the risk-reward has become more challenging at current levels. Shares have significantly outperformed over the last 12 months (~+300%) given
expectations for DTC combined with the re-opening and value rotation dynamics. While discovery+ appears off to a strong start, we remain concerned regarding the ultimate scalability of the service in relation to the decline of the linear business and longer term impact on financials. We expect relatively stable EBITDA/FCF through 2024 as DTC growth is balanced against linear declines. Nonetheless, shares are trading at all-time high valuations and upside in streaming appears more than priced in. We estimate the implied valuation of the DTC business at 20x '23E revenues, well ahead of NFLX's historical range (6-10x)."
Shares of Discovery Communications closed at $74.65 yesterday.
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