Read Why This Analyst Downgraded Rating On Paramount Global

Morgan Stanley analyst Benjamin Swinburne downgraded Paramount Global PARA from Equal-Weight to Underweight and cut the price target from $32 to $22.

The pivot to streaming has not reduced the risk to media estimates from a slowing economy, Swinburne notes. Advertisers and consumers are likely to pull back in a recession at a time when some media these stocks have outperformed the market year-to-date thanks to already low multiples, he reasoned. 

He is "incrementally cautious" on the TV/streaming group, saying the pivot to streaming "is about to get more difficult." 

Swinburne sees rising churn risk from consumers trimming their streaming portfolios in a more challenging economic environment. 

In addition, Apple Inc AAPL, Amazon.com Inc AMZN, and Netflix Inc NFLX "appear to be increasingly eager to peel away" major U.S. sports from the pay-TV bundle, he added.

Swinburne highlighted that PARA shares trade at a premium to its peers despite a more uncertain path towards long-term EBITDA and FCF growth. 

He and consensus expect '23 earnings to decline Y/Y given rising streaming investments. Still, outsized exposure to linear advertising (~32% of '22E revenue) and cord cutting (US linear affiliate revenues ~25% of '22 revenue) creates additional risk not reflected in valuation or estimates. 

Swinburne saw an opportunity for the direct-to-consumer business to scale and help mitigate pressures within the traditional media ecosystem over time. But near-term, he saw linear pay-TV pressure getting worse and a risk to near-term DTC estimates versus consensus and company guidance. 

There remains limited visibility into DTC profitability long-term and near-term investment needs push any potential for EBITDA growth out to 2024 as per Swinburne.

He added that a higher likelihood of recession presents a downside risk to near-term advertising estimates. 

Swinburne views the Paramount film studio as a scarce, valuable asset. 

Price Action: PARA shares traded higher by 0.60% at $25.15 on the last check Monday.