Shares of Discovery Inc. rose on Friday and were on track for their best day in more than 13 years after a Bank of America analyst spoke about the company’s prospects in streaming ahead of its deal with AT&T Inc. shouted about with an excited attitude. < WarnerMedia unit which is expected to come later this year.
Bank of America’s Jessica Reif Ehrlich upgrades Discovery’s stock DISCA,
Neutral to buy from Friday, arguing that, once combined with WarnerMedia, Discovery “has the potential to become the most dynamic global media company.”
Shares of Discovery were up 17.2% in Friday morning trading and were on pace to record their biggest single-day percentage gain since October 13, 2008, when they rose 17.4%.
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The streaming sector has become increasingly competitive, but Reef Ehrlich expects the “breadth” to thrive in a joint Warner Media-Discovery — especially if the company moves to offer a single streaming service that is typical of Discovery. Combines WarnerMedia’s strong film and television programming. Lifestyle and reality content.
“We believe that consumers will be the key determinants of winners and losers in the long run and depth, breadth, content quality and scale around certain streaming platforms,” she wrote. “This background provides the strategic rationale behind the merger of these two complimentary media assets, which now have the size and scale, and the potential to be more nimble outside of AT&T’s T,
proprietary, to compete effectively on a global basis.”
Discovery certainly faces risks as its management team will have to unify the two big companies, push for streaming, and face challenges in the world of linear television, but Reef Ehrlich thinks that The scale of the company, combined with Discovery Management’s strong track record, will provide an advantage, upon acquisition.
Discovery’s stock has an “extremely favorable” risk/reward profile, he said, “barring near-term technical overhang related to the merger.” Reef Ehrlich raised his price target from $34 to $45. Shares closed Thursday at $25.72 and recently changed hands at $30.10 in Friday’s session.
The company also disclosed in a Friday morning filing that Brahman Capital Corp has acquired a 5.26% stake in the company. According to FactSet data, Brahman Capital’s former holding stood at 1.76%.
Reif Ehrlich isn’t the only analyst recently cheering Discovery’s prospects. Wells Fargo’s Steven Kahl dubbed the stock his “top large-cap value idea” for the year in a Tuesday note to clients.
Discovery “needs to be on everyone’s radar for 2022,” he wrote at the time, adding that “HBO and Warner Bros. are real hit factories” and the combined asset mix looks appealing for the streaming age.
Shares have gained about 13% over the past three months, but have fallen just as much on a 12-month basis. s&p 500 spx,
Gained nearly 6% in the last three months and 23% in the last 12.