Warner Bros. Discovery Poised for Turnaround With Strong IP and Streaming Strategy, Analyst Says

Benchmark analyst Matthew Harrigan reiterated a Buy rating on Warner Bros. Discovery, Inc WBD with a price target of $20.

The re-rating follows this weekend's robust $81.5 million Dune: Part Two U.S. opening. 

The market is averse to recognizing an ongoing turnaround at the Warner Bros. studio and a fair likelihood that DTC can generate sustainable $1 billion+ in EBITDA post-2025, Harrigan stated.

Assuming creative and strategic execution, Warner Bros. Discovery will benefit enormously from the studio/DTC/network triad with evergreen IP and an unparalleled film and TV library, somewhat moderating the linear rating and advertising decay rates as consumption gravitates toward streaming. 

As per the analyst, the Harry Potter and Dune series will also benefit Maxm. 

A re-architecture of the TV ecosystem toward hybrid pricing and continued global licensing should buttress the value of the legacy Discovery Networks non-fiction and lifestyle programming and sports with new original scripted shows as the most challenging element.  

Dune: Part Two opened to a strong $81.5 million domestically, the best opening since last October for Taylor Swift's The Eras Tour film at $93 million, although it was likely to exceed the studio's conservative $65 million projection, Harrigan noted. 

The global tally was $178 million, although it has yet to open in sci-fi receptive China and Japan. 

It is a positive for Warner Bros., although the film admittedly cost $190 million to produce and ~$100 million to market, with economics shared with Legendary Pictures, as per the analyst. 

The 2021 Dune: Part One release garnered $402 million globally, although this was depressed by Warner Bros.' pandemic hybrid approach with a simultaneous streaming debut with a 2x+ result plausible for the current release, Harrigan said. 

Significantly, the spinoff series Dune: Prophecy will be on Max later in 2024, with the prequel exploring the origins of Dune. 

According to Harrigan, Studio positives include the relaunch of the studio animation business under DreamWorks veteran Bill Damaschke, the new partnership with Tom Cruise, the start of filming on James Gunn's Superman movie under new DC leadership, and the rapprochement with J.K. Rowling supporting the new Harry Potter content for Max as early as 2026.  

Harrigan projects first-quarter revenue and EBITDA of $10.35 billion and $2.14 billion, respectively.

Investors can gain exposure to Warner Bros via Invesco Leisure And Entertainment ETF PEJ and Invesco S&P 500 Equal Weight Communication Services ETF RSPC.

Price Actions: WBD is trading lower by 5.82% at $8.17 on the last check Monday.

Also Read: Paramount Global Explores Sale Options Amid Bids, While Warner Bros. Discovery Faces Stock Decline