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According to Wells Fargo, the risk-to-reward ratio for Warner Bros. Discovery is improving as the media company focuses on deleveraging and maximizing free cash flow. Analyst Steven Cahall upgraded the media stock to overweight from equal weight, citing growing confidence in the company’s ability to reduce its debt. “We have stress tested the downside and expect WBD to succeed in deleveraging, and at a modest multiple, this should create capital growth potential,” he wrote in a Friday note to clients. Shares of Warner Bros. Discovery, created from the merger between WarnerMedia and Discovery, is up more than 49% in 2023 after falling about 60% in 2022. Shares rose almost 3% ahead of the bell. And even as the stock has enjoyed solid gains this year, Cahall sees more upside potential going forward by raising its price target to $20 from $13 a share. This suggests upside potential of 41% from Thursday’s close. “We threw away everything and the kitchen sink due to the WBD Downside Case scenario and by 25E it is still 3x bigger,” he wrote. “Now we have confidence in the FCF to limit the downside while stocks have asymmetric upside potential.” WBD YTD has been covering Warner Bros. shares since the beginning of the year, Cahall said. He also sees the segment as undervalued relative to its peers given “short-term break-even and earnings growth going forward.” “A new WBD is emerging with strong FCF, a tactical approach, improved command and control, and great HBO content,” Cahall wrote. — Michael Bloom of CNBC provided the coverage.
Credit: www.cnbc.com /
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