On Tuesday, Goldman Sachs (NYSE:GS) initiated coverage on Paramount Global (NASDAQ:PARA) with a Sell rating, setting a price target of $9.50 for the media company's shares. The firm pointed to challenges in Paramount's traditional cable and broadcast network business as a reason for the pessimistic outlook, despite acknowledging advancements towards profitability for Paramount+ and normalization in the theatrical box office.
The analyst from Goldman Sachs noted that while there is optimism around Paramount+ moving towards profitability and a recovery in the film industry, these factors are unlikely to compensate for the ongoing decline in the linear cable and broadcast network segments. The expectation is that Paramount's revenue will remain relatively unchanged, hovering between $30 billion and $31 billion through 2030. Growth in direct-to-consumer (DTC) services and filmed entertainment is predicted to be negated by drops in TV media revenue.
The report highlights that cord-cutting trends will continue to impact TV media affiliate fees and advertising revenue negatively. However, the broadcast sports sector, particularly college football and NFL broadcasts on CBS, is anticipated to maintain more resilience. Additionally, the DTC segment is expected to see growth from price hikes, strategic distribution, and targeted content investment, leading to an increase in subscribers and average revenue per user (ARPU).
For the filmed entertainment division, growth is projected to come from the normalization of content licensing following labor strikes and a resurgence in box office performance. Despite these positive aspects, the overall operating income before depreciation and amortization (OIBDA) for Paramount is anticipated to remain flat in the medium term, from 2024 through 2030, as the increased profitability in DTC will likely be balanced out by the escalating costs associated with linear TV sports rights.
In other recent news, Paramount Global has been garnering attention due to a series of potential acquisitions and strategic proposals. Skydance Media has revised its bid to acquire a portion of Paramount's non-voting shares at $15 per share, a move supported by a special committee within Paramount's board. Wells Fargo (NYSE:WFC) maintained an Equal Weight rating on Paramount stock amid these developments.
Meanwhile, financier Steven Paul has proposed a $3 billion offer for National Amusements, Paramount's controlling shareholder. Edgar Bronfman Jr., in partnership with Bain Capital, is also considering a bid estimated between $2 billion and $2.5 billion for National Amusements.
Analysts at Rosenblatt have weighed in on the situation, stating that the current offer appears to reflect a limited valuation for Paramount's streaming services and a low earnings multiple for its television networks. The outcomes of these negotiations could significantly impact Paramount's direction and operations moving forward.
InvestingPro Insights
In light of Goldman Sachs' recent Sell rating for Paramount Global, real-time data from InvestingPro provides an additional perspective for investors considering the media company's stock. Paramount Global's market capitalization stands at $7.15 billion, reflecting its position in the industry. Despite the challenges faced in the traditional cable and broadcast network business, Paramount Global trades at a low Price / Book multiple of 0.33, which could attract value-oriented investors.
Analysts have noted the stock's volatility, with a 1-month price total return of -13.54%, highlighting the risks associated with the current market sentiment towards the company. Nevertheless, Paramount Global has shown a commitment to its shareholders by maintaining dividend payments for 19 consecutive years, with a current dividend yield of 1.94%, which might be of interest to income-focused investors.
For readers interested in deeper analysis, there are additional InvestingPro Tips available that could further inform investment decisions. For instance, Paramount Global is recognized as a prominent player in the media industry and has maintained liquidity that exceeds short-term obligations. To explore these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. There are 7 more InvestingPro Tips available, which could offer valuable guidance in evaluating the company's prospects.
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