Amidst a landscape of uncertainty and formidable obstacles, Wall Street analysts have been meticulously scrutinizing entertainment stocks, searching for potential winners that can navigate the turbulent seas more effectively than their peers. As we reach the mid-year point of 2023, several industry experts have voiced their support for Warner Bros. Discovery, Netflix, Endeavor, and other conglomerates. This article delves into the well-reasoned choices made by renowned analysts, shedding light on the factors driving their recommendations and providing insight into the evolving dynamics of the entertainment market.
Doug Creutz, TD Cowen:
Pick: Warner Bros. Discovery
Rationale: Doug Creutz, a distinguished analyst at TD Cowen, underscores the compelling prospects of Warner Bros. Discovery despite the stock’s gains in the first half of 2023. In a May report, Creutz highlights the strength of the company’s turnaround thesis, citing positive first-quarter earnings and management commentary that reflects expectations of U.S. direct-to-consumer profitability ahead of schedule. Creutz emphasizes the significance of the financial improvement of businesses acquired in the merger between Discovery and AT&T’s WarnerMedia, asserting that this serves as the primary driver of upside for CEO David Zaslav’s company. The prudent and sustainable streaming strategy adopted by Warner Bros. Discovery, coupled with management’s ability to achieve synergy targets, further bolsters Creutz’s confidence in the stock, prompting him to maintain an “outperform” rating with a $19 price target.
Benjamin Swinburne, Morgan Stanley:
Pick: Endeavor
Rationale: Benjamin Swinburne, an astute analyst at Morgan Stanley, positions Endeavor as his top pick in the media and entertainment sector. Swinburne’s bullish outlook is fueled by the favorable tailwinds experienced by Endeavor’s assets, particularly in the realm of sports, as the company owns UFC, IMG, WME, On Location, and hosts various live events. This exposure to sports, combined with its sports data and technology segment, positions Endeavor to achieve substantial adjusted earnings before interest, taxes, depreciation, and amortization growth in the coming years. Swinburne identifies key catalysts such as the completion of the all-cash sale of the IMG Academy business, the resolution of the writer’s strike, and the closure of the TKO transaction with WWE, all of which are expected to bolster Endeavor’s performance. With a $32 stock price target, Swinburne envisions Endeavor as an investment opportunity centered around premium talent, intellectual property, and sports assets.
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Jessica Reif Ehrlich, Bank of America:
Picks: Netflix and Warner Bros. Discovery
Rationale: Jessica Reif Ehrlich, an esteemed analyst at Bank of America, showcases her confidence in both Netflix and Warner Bros. Discovery. Ehrlich’s June report titled “Sharing in the Upside” reveals her revised subscriber and financial forecasts for Netflix, attributing her increased price target to improved growth prospects resulting from the crackdown on password sharing. Ehrlich projects substantial net subscriber additions for 2023 and 2024, which will translate into significant revenue and earnings before interest, taxes, depreciation, and amortization. With a world-class brand, a vast global subscriber base, and a penchant for innovation, Netflix stands poised for continued outperformance, according to Ehrlich. Regarding Warner Bros. Discovery, Ehrlich’s bullish outlook stems from the long-term potential she perce.
Steven Cahall, Wells Fargo
Pick: Walt Disney
Amidst the intricate tapestry of media conglomerates, Steven Cahall, an esteemed analyst at Wells Fargo, confidently singles out Walt Disney as a “signature pick” and “best opportunity in media.” With an “overweight” rating and a raised stock price target of $147, Cahall firmly believes in Disney’s potential for success. He praises the synergistic integration of Disney’s franchise intellectual properties, sports, and entertainment divisions, complemented by the significant contribution of Disney Parks, Experiences, and Products. Recognizing the leadership and vision of former and current CEO Bob Iger, Cahall attributes Disney’s growth to meticulous execution rather than mere portfolio shaping. He asserts that Disney’s stock, currently stagnating at $100 per share, is poised for substantial growth due to its underutilized content budget and the anticipated rationalization of costs. Cahall concludes by emphasizing Disney as the premier media investment opportunity, projecting an impressive 50 percent upside potential.
Robert Fishman, SVB MoffettNathanson
Pick: Fox Corporation
Robert Fishman, an astute analyst at SVB MoffettNathanson, acknowledges the recent negative publicity surrounding Fox News, including the Dominion legal settlement and the unexpected departure of Tucker Carlson. Despite these challenges, Fishman remains optimistic about Fox Corporation’s fundamentals and robust free cash flow. He highlights the company’s consistent financial performance, particularly in the face of changing media landscapes. Fishman identifies Fox’s advantageous position in retrans rates and reverses compensation from affiliates as key factors setting it apart from competitors. Furthermore, he points out that Fox’s peers are likely to face increasing pressure due to the leakage of premium content to streaming services, often at discounted rates. Fishman maintains an “outperform” rating and sets a price target of $44 on the stock, underscoring his confidence in Fox Corporation’s resilience and long-term prospects.
Jeffrey Wlodarczak, Pivotal Research Group
Picks: Netflix and Liberty Media – Formula One Group
Jeffrey Wlodarczak, an esteemed analyst at Pivotal Research Group, identifies two compelling investment opportunities within the entertainment realm: Netflix and Liberty Media – Formula One Group. With a bold move, he raises his price target on Netflix to a Street high of $535, citing increased earnings expectations and robust free cash flow projections for 2023 and beyond. Wlodarczak characterizes Netflix as a unique tech growth story, capable of maintaining solid subscriber and revenue growth even in a potential global recession. He underscores the company’s ability to monetize the vast number of households utilizing Netflix through password sharing and anticipates further benefits from the company’s advertising-supported tier. In a separate recommendation, Wlodarczak highlights Formula One’s flourishing performance under Liberty Media’s ownership. Citing notable achievements such as record-breaking race attendance, broadcast deal extensions, and the potential for lucrative ventures like the Las Vegas Grand Prix, he asserts that Formula One is hitting its stride. Wlodarczak believes that the market has yet to fully appreciate the positive impact of Liberty Media’s management and the potential for future acquisitions that could enhance Formula One’s standing in the industry.
Eric Handler, Roth MKM
Pick: WWE
Eric Handler, a reputable analyst at Roth MKM, places his confidence in WWE, a dominant force in sports entertainment. He asserts that WWE boasts strong fundamentals, with an upcoming U.S. TV deal poised to be a major milestone for the company. Handler maintains a “buy” rating and sets a price target of $130 on WWE, emphasizing the significance of the domestic TV rights negotiations for the stock’s future performance. Moreover, he anticipates the successful completion of the UFC merger in the second half of 2023. Handler outlines additional opportunities for WWE, including the renewal of the WWE Network license and various international deals of consequence. With renewal contracts in key regions such as the Middle East, the U.K., Canada, and India, WWE has the potential for significant revenue growth. Handler believes that WWE’s strategic positioning and imminent milestones make it a top investment choice.
Matthew Harrigan, Benchmark
Pick: Warner Bros. Discovery
Matthew Harrigan, a respected analyst at Benchmark, designates Warner Bros. Discovery as his favored stock within the industry. Harrigan lauds the company’s positive first-quarter earnings report and management’s optimistic commentary. Of particular note is the direct-to-consumer business, which generated $50 million in positive earnings before interest, taxes, depreciation, and amortization, with expectations for future profitability. Harrigan anticipates $1 billion in global profits by 2025, demonstrating his confidence in Warner Bros. Discovery’s growth potential. He also highlights the company’s shift from post-merger restructuring to a renewed focus on business expansion in 2023. As other media companies reevaluate their streaming-centric strategies, Warner Bros. Discovery is poised to capitalize on relaunching and strengthening its operations. Harrigan believes that the market has yet to fully appreciate Warner Bros. Discovery’s achievements and the potential for strategic acquisitions enabled by its favorable tax structure.
