Wells Fargo Downgrades AMC Networks, Discovery, ViacomCBS: What Investors Need To Know

Three major omnichannel entertainment giants with significant streaming presence — AMC Networks AMCX, Discovery DISCA and ViacomCBS VIAC — were the subject of a withering analyst note from Wells Fargo Friday that resulted in the stocks taking a sizable tumble.

The Party’s Over: Analyst Steve Cahall compared the three companies’ state of health to a hangover.

“It was a great party and we think primarily non-fundamental investing drove massive rallies recently in AMCX, DISCA and VIAC,” he said.

“We think the companies are better off than they were in 2020 due to DTC, but there's too much risk to justify the recent valuations without a technical premium. While we expect valuations to settle higher than prior norms due to the continued threat of quant/momentum/short squeeze we think normalized valuation levels still represent downside.”

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The stocks have already peaked and are “falling back towards something closer to historical norms, and will be more grounded in valuation in the months ahead,” Cahall said.

The driver of the stocks’ recent performance could be a new wave of investors who’ve been shaking up Wall Street since January, the analyst said. 

The stocks ran through analyst downgrades and rallied by double digits on "limited info," he said. 

“And, it all started in late January around the time of the GME frenzy,” Cahall said. “We continue to believe that these stocks reflected a core/DTC valuation but most of the rally was a premium driven by a combination of short squeeze hunting and momentum buying by non-fundamental investors.”

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The AMCX, DISCA, VIAC Ratings, Price Targets: Cahall downgraded ViacomCBS from Equal Weight to Underweight with a price target cut from $82 to $59. 

Discovery was downgraded from Overweight to Equal Weight with a price target lowered from $65 to $59. 

AMC Networks was downgraded from Equal Weight to Underweight with a price target cut from $63 to $52. 

AMCX, DISCA, VIAC Price Action: AMC Networks shares closed Friday's session down 11.27% at $54.01. 

Discovery shares lost 27.45%, closing at $41.90. 

ViacomCBS shares pulled back 27.31%, closing at $48.23.