On Friday, Seaport Global Securities maintained its Neutral rating on Paramount Global (NASDAQ:PARA) shares. The decision follows the firm's reassessment of Paramount's financial projections, considering several factors that could affect its performance. The firm pointed out that adjustments were made to the third quarter 2024 estimates due to the expected timing of Content Licensing revenues, which are now anticipated to be more prominent in the fourth quarter. This shift is partly attributed to the post-strike ramp-up period and the scheduling of theatrical releases.
Seaport Global Securities also revised its forecasts for 2025, citing a more conservative outlook on TV Media advertising and a slower trajectory towards profitability for Paramount's Direct-to-Consumer (DTC) segment internationally. These revisions have led to a lower free cash flow (FCF) estimate for Paramount. The firm noted that Paramount's current low unlevered yield, which is under 6%, lacks appeal for investors. Additionally, the impact of the Skydance deal, which is considered dilutive, is a contributing factor to maintaining the Neutral stance.
The firm has incorporated the Skydance merger into its valuation perspective for Paramount. However, it clarified that the financial estimates for Skydance Media have not yet been included in the consolidated Paramount model. This suggests that while the merger is recognized in the overall assessment of Paramount's value, the specific financial details of Skydance Media remain separate from Paramount's current financial projections.
Seaport's analysis indicates caution due to the combination of the delayed content licensing revenue, a moderated advertising outlook, and challenges in achieving international profitability in the DTC segment. These factors contribute to the rationale behind the firm's decision to uphold a Neutral rating on Paramount Global shares, signaling a wait-and-see approach for the media company's future performance.
In other recent news, Paramount Global reported a robust 43% growth in total company adjusted OIBDA and a 46% increase in Paramount+ revenue. JPMorgan maintains an underweight rating on Paramount shares, with a steady price target of $11.00, based on recent trends that keep the third-quarter Operating Income Before Depreciation and Amortization (OIBDA) unchanged at $655 million. Paramount Global also declared a quarterly cash dividend of $0.05 per share. The company is moving forward with its merger plans with Skydance Media.
In terms of analyst ratings, Seaport Global Securities has maintained a neutral rating for Paramount Global, Loop Capital has reiterated its sell rating, while Wells Fargo has upgraded its rating from 'Underweight' to 'Equal Weight'.
Paramount Global has initiated the second phase of its planned layoffs, targeting a $500 million reduction in annual costs as part of its broader effort to streamline operations. Edgar Bronfman Jr., a media executive, has proposed a $4.3 billion bid to acquire National Amusements, the company with a controlling interest in Paramount Global, potentially triggering a $400 million termination fee.
InvestingPro Insights
Recent InvestingPro data provides additional context to Seaport Global Securities' Neutral stance on Paramount Global (NASDAQ:PARA). The company's Price to Book ratio of 0.45 as of Q2 2024 suggests that the stock might be undervalued, aligning with the InvestingPro Tip that PARA is "Trading at a low Price / Book multiple." This could potentially offer some upside for investors, despite the challenges noted in the article.
However, the company's financial performance has been mixed. While Paramount boasts a substantial revenue of $29.27 billion over the last twelve months as of Q2 2024, it has experienced a revenue decline of 2.2% during the same period. This decline in revenue, coupled with the article's mention of a more conservative outlook on TV Media advertising, underscores the challenges Paramount faces in its core business segments.
On a positive note, an InvestingPro Tip indicates that "Net income is expected to grow this year," which could potentially improve the company's financial position. This expectation of profitability aligns with the article's discussion of the timing of Content Licensing revenues and their impact on quarterly performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Paramount Global, providing a deeper understanding of the company's financial health and market position.
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