On Monday, CFRA downgraded shares of Paramount Global (NASDAQ: PARA) from Buy to Hold, adjusting the price target to $12 from the previous $16. The revision reflects a new target based on a forward Total Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (TEV/EBITDA) multiple of 6.9 times the firm's 2025 EBITDA estimate of $2.93 billion. This figure is notably lower than the company's five-year historical average of 9.5 times and the average of its peers.
The downgrade comes amid Paramount Global's merger with Skydance Media, which will result in the acquisition of 100% of National Amusements, Inc. (NAI), a controlling shareholder of Paramount.
According to the terms of the deal, existing public Class B shareholders of Paramount will receive a cash offer of $15.00 per share, up to a total of $4.3 billion. Those Class B shareholders not affiliated with NAI who do not receive cash will be granted one new Paramount Class B share for each existing share they own.
The transaction is slated for completion by the end of September. Still, CFRA views the merger as a complex deal that falls short of a complete buyout of Paramount's shareholders. Despite the potential for significant content production and distribution opportunities for the newly combined entity, the analyst expressed caution due to the competitive nature of the current movies and entertainment industry.
CFRA has expressed a positive outlook on the new company's potential to meet financial targets concerning revenue and EBITDA in 2026 and 2027. Nevertheless, the firm emphasizes the importance of monitoring Paramount's progress over the next couple of years, from 2024 to 2025, to better assess the company's trajectory following these recent developments.
In other recent news, Paramount Global and Skydance Media are set to merge, marking a significant shift in the media landscape. The merger will see Skydance and its partners initially purchase National Amusements for $2.4 billion, which includes the Redstone family's controlling interest in Paramount.
The second phase involves Skydance merging with Paramount, offering shareholders the option to receive $4.5 billion in cash or stock. This deal is also expected to contribute $1.5 billion to Paramount's balance sheet.
Furthermore, Loop Capital has maintained its Sell rating on Paramount Global amidst this development, with a steady price target of $8.00. Goldman Sachs also initiated coverage on Paramount with a Sell rating due to challenges in the company's traditional cable and broadcast network business. The firm expects Paramount's revenue to remain relatively unchanged, hovering between $30 billion and $31 billion through 2030.
Lastly, Paramount Global's co-CEOs George Cheeks, Chris McCarthy, and Brian Robbins are set to present their strategy to shareholders. This comes at a pivotal time as the company explores a potential merger with Skydance Media.
Edgar Bronfman Jr., a former media executive, alongside Bain Capital, has shown interest in acquiring National Amusements, the controlling shareholder of Paramount, with a potential bid estimated to be in the range of $2 billion to $2.5 billion.
InvestingPro Insights
In light of Paramount Global's recent developments and CFRA's adjusted outlook, real-time data and insights from InvestingPro provide additional context for investors. Paramount Global is currently trading at a low Price / Book multiple of 0.37 as of Q1 2024, indicating the stock may be undervalued compared to the company's book value.
Moreover, the company has experienced a significant return over the last week, with a 1 Week Price Total Return of 16.47% as of the date provided. This sharp increase could reflect market reactions to the merger news or other factors influencing investor sentiment.
Paramount Global has maintained dividend payments for 19 consecutive years, demonstrating a commitment to returning value to shareholders. The current Dividend Yield stands at 1.69% as of the latest data, which could be attractive to income-focused investors.
While analysts have concerns about the company's profitability, with a negative P/E Ratio of -73.46, there is optimism as analysts predict Paramount will be profitable this year. These InvestingPro Tips suggest a nuanced picture of Paramount Global's financial health and market position.
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