Warner Bros Would See Cash Flow Upside From Deleveraging And Content Ramp Up: Analysts

Goldman Sachs analyst Brett Feldman maintains Warner Bros. Discovery Inc WBD with a Buy and raises the price target from $19 to $21.

Last week Warner Bros. reported a first-quarter FY23 revenue decline of 5% ex-FX year-on-year to $10.70 billion, missing the consensus of $10.78 billion. EPS loss of $(0.44) missed the consensus of $0.01.

The analyst highlights improving DTC profitability offsetting linear headwinds post-first-quarter miss. Recognizes the stock as a top media pick, boosting the price target.

Truist analyst Matthew Thornton reiterates a Buy on Warner Bros. with a $19 price target.

Revenue and adjusted EBITDA miss on weaker Networks (advertising market) and Studios (despite Hogwarts Legacy success) 

He found mixed DTC results as subscribers and adjusted EBITDA were ahead, while revenue was below.

The analyst highlights at least reaffirming every guidance, including 2023 adjusted EBITDA; 2023 and long-term FCF conversion; 2023 and 2024 leverage; 2023 and 2024 cost synergies; DTC 2025 adjusted EBITDA (DTC Domestic profitability expected in 2023 – 1 year earlier than previous)

Credit Suisse analyst Douglas Mitchelson reiterates Warner Bros. with an Outperform and a $36 price target.

The analyst's 2023 EBITDA and FCF estimates remained unchanged or raised for two quarters in a row after a rough start to the merger just over a year ago, marking a win for the stock. 

He expects Warner Bros. to start delivering rapidly finally. The mid-point-of-guidance FCF estimate for 2023 of $4.5 billion includes ~$1.5 billion of costs to achieve merger synergies and ~$1 billion of incremental working capital for content spending, a whiff of a ramp in streaming originals and post-pandemic catch-up spending that should unwind in future years. 

Despite no multiple expansions, Warner Bros. has an 82% potential upside in the next 18 months. If Warner Bros. can deliver on consensus estimates and successfully deliver, it should be one of the best-performing stocks in his coverage.  

Price Action: WBD shares traded higher by 4.31% at $13.45 on the last check Monday.

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