Stock Valuation Is Key for This Entertainment Giant

Can Warner Bros Discovery turn its luck around in 2023?

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Warner Bros Discovery Inc (NASDAQ:WBD) is a global media and entertainment company that creates and distributes a diverse portfolio of content and brands across television, film, and streaming. WBD's portfolio includes Discovery Channel, discovery+, CNN, CNN+, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, and others. 

The company, Warner Bros. Discovery, was formed through the sale of WarnerMedia by AT&T (T) and its subsequent merger with Discovery, Inc. which occurred on April 8. The new stock originally traded at around $25 per share and it has dropped sharply since the merger. Warner Bros stock has decreased 48% year-over-year, touching a more than two-year low of $17.89 on April 28. The stock is now facing pressure at all short- and long-term trendlines.

Analysts are split. Of the 15 in coverage, seven say "strong buy," while eight say "hold" or worse. Meanwhile, the 12-month consensus price target of $45.74 is a hefty 87.9% premium to current levels.

The entertainment company has struggled to maintain consistent top and bottom line growth in recent years and the merger has not improved that situation so far. Warner Bros Discovery reported a 4% decline in revenues and a 20% decrease in net income for fiscal 2020, as well as a 17% drop in net income for fiscal 2021.  

Nonetheless, Warner Bros. stock continues to offer a very attractive valuation at a forward price-earnings ratio of 8.01 and a price-sales ratio of 0.96. In addition, the entertainment business is estimated to grow revenues by a huge margin of 275.9% for fiscal 2022. WBD is also estimated to increase revenues by 12.1% and earnings by 302.5% for fiscal 2023, possibly making Warner Bros. stock one of the most undervalued stocks in the market.

 

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