On Tuesday, RBC Capital adjusted its outlook on Corus Entertainment (CJR/B:CN) (OTC: OTC:CJREF) shares, significantly reducing the price target from C$1.25 to C$0.50. The firm has decided to maintain its Sector Perform rating on the media company's stock.
The modification of the price target comes as a result of Corus Entertainment's unexpected non-renewal of programming and trademark output arrangements with Warner Bros. Discovery (NASDAQ:WBD). This development prompted RBC Capital to revise its estimates for the company's financial performance.
In response to the non-renewal, RBC Capital has also adjusted its valuation multiples for Corus Entertainment, citing an increased risk profile for the company. The decreased target multiples have directly influenced the new, lower price target.
The analyst from RBC Capital provided insight into the decision, stating that the updated forecast and valuation reflect the new circumstances following the loss of the Warner Bros. Discovery content agreements. The firm's analysis led to a reduction in the expected valuation of Corus Entertainment's shares.
Despite the reduction in the price target, RBC Capital's Sector Perform rating indicates that the firm's view of Corus Entertainment's stock performance aligns with the expected performance of the sector as a whole. The current rating suggests that the firm does not anticipate the stock to significantly outperform or underperform the sector average at this time.
In other recent news, Corus Entertainment has been downgraded by Scotiabank from Sector Perform to Sector Underperform. This shift in stance follows the announcement that Warner Bros Discovery will not renew certain programming and trademarks with Corus beyond 2024.
The non-renewal is expected to significantly impact Corus, as the affected programming and trademarks across five channels accounted for approximately C$155 million in revenues and C$49 million in operating income in fiscal 2022.
The company plans to replace the programming on these channels, but the loss of trademarks may cause a decrease in subscribers. According to Scotiabank's analysis, Corus could potentially lose up to 50% of the subscribers and advertising revenue from these channels.
Despite maintaining the EBITDA multiple at 4x, Scotiabank's projections suggest that Corus's EBITDA could fall to C$306 million by 2025, leading to a lowered valuation of C$0.37 per share. These recent developments are expected to significantly affect the valuation of Corus Entertainment's stock.
InvestingPro Insights
Recent analysis from InvestingPro provides a deeper look into Corus Entertainment's financial health and market performance. The company is currently trading at a low Price / Book multiple of 0.3, which may appeal to value investors seeking underpriced stocks. Despite a significant dividend yield of 42.97%, which could attract income-focused investors, analysts have expressed concerns, with four analysts recently revising their earnings downwards for the upcoming period, signaling potential headwinds for the company.
Moreover, Corus Entertainment has experienced a notable decline in its stock price, with a one-week total return of -24.09% and a one-year total return of -74.14%, reflecting the market's reaction to recent developments and uncertainties. The company has also been grappling with a decline in revenue, posting a -9.2% change in the last twelve months as of Q2 2024. These metrics underscore the challenges Corus Entertainment faces, as highlighted by the recent adjustments made by RBC Capital.
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