TD Cowen downgrades Warner Bros. Discovery on concerns a takeover may not happen
The latest rally in shares of Warner Bros. Discovery may not hold if a takeover bid from Paramount Skydance doesn’t come to fruition, TD Cowen said this week. The firm downgraded shares to hold from buy after its recent boost in shares led its stock price to surge beyond its $14 price target, which implies 28% downside from Monday’s closing price. Warner Bros. Discovery shares have soared more than 67% this month after CNBC learned that Paramount Skydance is working with an investment bank to prepare an offer for Warner Bros. Discovery. Paramount Skydance shares are also up more than 26% this month. WBD 5D mountain WBD, 5-day “While PSKY may come in with a $20+ bid, we don’t love the risk-reward here given the potential for WBD shares to quickly round-trip to $11-$12 if the bid doesn’t materialize,” said Doug Creutz in a note dated Monday. “The report on the potential deal lacks concrete details or confirmation from any of the parties involved. Sometimes the best move is to admit you don’t have a particular edge on a situation and move to the sidelines; that is what we are doing here.” While Creutz believes the likelihood of the bid coming through — as well its acceptance and regulatory approval — is high, he pointed out that there are many hurdles that could stand in the way. On top of that, if the bid were to fall through, the analyst thinks the number of potential suitors to bid for the company is “limited.” “We think the regulatory hurdles for Comcast would be much higher than for PSKY, given Trump’s animosity towards most legacy media companies; the capital commitment required for a deal is probably too much for Sony; and we don’t expect to see other large tech companies choosing to compete with PSKY (in part because PSKY’s potential synergies with WBD are much higher),” he wrote. Wall Street is pretty split on the name. Fourteen out of the 27 analysts covering Warner Bros. Discovery have a strong buy or buy rating, according to LSEG. Thirteen others, including Creutz, have a hold rating. In premarket trading Tuesday, the stock was down more than 2%.
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