Wolfe upgrades Warner Bros. Discovery as trends at Max improve

Wolfe Research upgraded Warner Bros. Discovery (NASDAQ:WBD) to “peer perform” from “under perform,” seeing a balanced risk/reward opportunity even with the $40B in gross debt for the company.

They said that re-bundling and partnership trends at Max would also create a plausible path to stable total company EBITDA.

“Max’s international acceleration, DTC’s inflection to meaningful profitability, and growing appetite by traditional TV distributors to carry streaming services + linear nets should provide Warner with FCF to pay down debt and invest in its healthier businesses,” Wolfe said in their research note.

The research firm weighed in on management comments from their earnings call, where company executives expressed their interest in spin/M&A for their portfolio of assets.

“Under the Biden White House, with a lack of investor and strategic enthusiasm for legacy assets, too much debt, & loss of the NBA, the odds of a spin/sale were low. Trump’s election and Comcast’s strategic initiatives signal improving chances for deals that would unlock value,” they said.

WBD stock does not have a price target assigned from the research firm. Shares of the company were down 17% so far this year.