Paramount Plunged After Earnings, But Analysts Find Dividend Cut Apt To Preserve Cash Flows

Benchmark analyst Daniel L. Kurnos reiterated a Buy rating on Paramount Global PARA and a price target of $28.00.

Shares of Paramount plummeted 28% after the disappointing 1Q23 results and slashed the dividend. 

The quarter itself, in many ways, epitomized the bear case. The revenue miss was mainly on the licensing side, with TV Media OIBDA also primarily responsible for the cash flow shortfall.

 The FCF burn was three times the consensus and two times the analyst's forecast on a much wider negative working cap delta. 

The only outperformance came from the DTC segment, but not yet producing enough net upside to offset the perceived cost. The long-awaited dividend cut felt like it came at an awkward time, suggesting incremental FCF pressure ahead. 

However, the management left several potential catalysts on the table, including incremental cost savings and additional divestitures and partnerships. 

Guggenheim analyst Michael Morris maintained a Buy on the stock and lowered the price target from $26.00 to $23.00.

The 1Q revenue missed expectations, primarily driven by lower-than-expected advertising revenue at TV Media and the timing of licensing deals. 

Paramount reduced its quarterly dividend, with management noting the uncertainty created by a combination of peak streaming investments and cyclical ad softness. 

1Q DTC results were bright, with revenue accelerating, segment loss, and Paramount+ subscribers ahead of expectations. 

Management noted signs of stabilization in the ad market and expects TV Media declines to improve modestly in 2Q. Similarly, DTC ad revenue is forecasted to continue to accelerate, though he left his full-year segment profit outlook unchanged.

JP Morgan analyst Philip Cusick had an Underweight rating on the stock. The dividend cut stings but finds it appropriate for the business. The analyst hails the solid DTC execution.

Price Action: PARA shares traded higher by 3.81% at $17.03 on the last check Friday.