Paramount on Monday announced that it would integrate its Showtime cable channel and its Paramount+ streaming network.
Dreamstime
Shares of
Paramount Global
gained rapidly in January, but now Macquarie Capital says it is time to exit the stock.
On Monday, analyst Tim Nollen downgraded Paramount’s stock (ticker: PARA) to Underperform, the equivalent of Sell, from Neutral. He expects the media stock to lose roughly one-third of its value from current levels, maintaining his $15 target price.
Nollen’s downgrade comes after Paramount shares surged more than 30% this month to $23, marking the stock’s best January on record going back to 1991. The
S&P 500
is up 5.5% so far this month.
The acceleration in price is part of the problem, the analyst says. The stock is trading near the top of its peer group at an enterprise value to projected 2023 Ebitda—or earnings before interest, taxes, depreciation, and amortization—multiple of 10.8 times. “We do not believe [the multiple] is warranted at this time,” the analyst wrote in a note.
Comparatively, rival media company
Warner Bros. Discovery
(WBD)— Nollen’s top pick in the group —trades at enterprise-value to Ebitda multiple of 7.5 times. That’s high, “but still below peers,” he said.
Paramount’s ad exposure is also a problem, Nollen says, noting that ad dollars make up 35% of sales, the highest percentage in the peer group.
“Ad revenues will likely be firmly negative in the fourth quarter and 2023,” the analyst said, cutting his fourth-quarter earnings estimate to 17 cents a share from 30 cents.
Paramount didn’t immediately respond to a request for comment. Earlier this month, Chief Executive Robert Bakish said at the UBS Global TMT Conference that the company sees its fourth-quarter advertising business “coming in a bit below the third quarter.”
Advertisers have been reluctant to commit dollars in a weak macroeconomic environment where consumers are holding their money tight. Stocks of companies like
Snap
(
SNAP
) and others with advertising-related revenue saw losses in 2022.
Paramount on Monday announced that it would integrate its Showtime cable channel and its Paramount+ streaming network. The company is scheduled to report fourth-quarter results on Feb. 16. Consensus among analysts tracked by FactSet is for quarterly earnings of 25 cents per share on sales of $8.1 billion.
Analysts are mixed on the stock: A total of 13 rate it as Sell, nine are on the sidelines with a Hold rating, and seven rate it as Buy, according to FactSet.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com
Credit: marketwatch.com