Warner Bros. Discovery Shares Rise After Upgrades on Merger Integration Progress

The stock is trading up more than 48% so far this year after falling sharply in 2022 following combination amid market slump


Shares of Warner Bros. Discovery gained 50 cents, or 3.5%, to $14.66 in Friday morning trading after two analysts upgraded the company to their highest rating.

Wells Fargo analyst Steven Cahall lifted the stock to “Overweight” (or “Buy”) from “Equal Weight” (or “Neutral”) and lifted his price target to $20 from $13.

With the stock already up 48% since the start of the year, the $20 price target indicates the analyst expects shares to soar an additional 41% by the end of 2023.

The stock has “asymmetric upside,” the analyst told investors in a research note, according to TheFly.com.

Cahall wrote that his views on Warner Bros. Discovery are “trending more positive” on due to synergies and execution — meaning that the company is doing a solid job combining the two companies that merged in April.

The combined company had a series of layoffs and reshuffled top executives last year, and in the fourth quarter of 2022 it booked $3.05 billion in charges related to the merger.

“Last year was a year of restructuring, 2023 will be a year of building. And off we go,” Warner Bros. Discovery CEO David Zaslav told analysts on the company’s earnings call. “We have a great hand and we’re doing a lot right. That said, there’s still more that we need to get right and we are hard at work.”

Wells Fargo also thinks the company’s DTC offering, HBO Max, is currently undervalued compared with rivals, given the “near-term break-even and future profit ramp.”

The media conglomerate is expected to launch its combined HBO Max/Discovery platform later this year, though it recently said it will also keep its Discovery+ streamer in play as well.

Separately, Wolfe Research analyst Peter Supino upgraded Warner Bros. Discovery to “Outperform,” that firm’s equivalent to “Buy,” from “Peer Perform.” The analyst also set a $20 price target.

With the one-year anniversary of the merger approaching next month, Supino pointed out in a note to investors that shares remain about 42% below their price at the time of the deal. But he said internal visibility into the company is higher. Supino lauded Warner’s execution, and also pointed to free cash flow and its effort to pay down debt. The company was left with a heavy debt burden of more than $47.7 billion after the combination, but has already paid down about $2 billion.

Shares of Warner Bros. Discovery rivals followed the broader market down slightly in the morning session.

Disney shares slipped 84 cents to $93.45. Paramount Global shares dipped 15 cents to $19.58. And Netflix shares shed $3.83, to $306.23.