Warner Bros. Discovery Downgraded by KeyBanc Amid Deal Speculation Uncertainty

Warner Bros. Discovery has been cut to sector weight from overweight at KeyBanc due to uncertainty surrounding a potential deal with Paramount Skydance. The analyst believes the share price may have gotten ahead of itself on speculation of a deal. Despite this, the analyst still likes the fundamental improvement in the company.

Warner Bros. Discovery (WBD), the merged entity of Warner Bros. and Discovery, Inc., has been downgraded to sector weight from overweight by KeyBanc analyst Brandon Nispel. This move comes amidst speculation about a potential acquisition by Paramount Skydance (PSKY). According to Nispel, the share price of WBD has gotten ahead of itself due to the deal uncertainty, which could lead to a downside if the deal fails to materialize Warner Bros. Discovery cut at KeyBanc amid deal uncertainty^[2].

Nispel noted that while the fundamental improvement story of WBD remains attractive, the risk-reward profile is now neutral. The analyst cited reports suggesting that PSKY could bid between $22 to $24 per share for WBD, with a lower probability of a bidding war driving the stock significantly higher. Despite this, Nispel believes the stock's current valuation of around $40 is not justified by the potential deal's terms Warner Bros. Discovery cut at KeyBanc amid deal uncertainty^[2].

The analyst's concerns align with the market chatter indicating that PSKY has yet to formally approach WBD with a buyout bid. PSKY is reportedly assessing the best way to approach WBD's CEO, David Zaslav, who is also receiving interest from other potential suitors such as Netflix (NFLX) and Amazon (AMZN) for WBD's streaming and studio business Market Chatter: Paramount Skydance Has Yet to Make Formal Bid for Warner Bros. Discovery^[1].

Despite the uncertainty, WBD has seen its share price rise by 58% since the initial reports of a potential bid by PSKY. However, the recent downgrade by KeyBanc suggests that investors should be cautious about the stock's valuation and the potential risks associated with the deal's uncertainty Warner Bros. Discovery cut at KeyBanc amid deal uncertainty^[2].