Bank of America initiates Paramount Skydance at underperform, says ‘big picture is cloudy’
It could take years for Paramount Skydance to make a successful turnaround after its merger, according to Bank of America. Analyst Jessica Ehrlich initiated the stock with an underperform rating and $11 price target, which implies about 25% potential downside from its latest close of $14.74 per share. Ehrlich’s biggest concern is the myriad of questions surrounding the merger of Skydance Media and Paramount Global, which created Paramount Skydance . Ehrlich told clients that it was “a splashy dance routine out the gate, but big picture is cloudy.” “We believe PSKY has the potential to be a dynamic global media company. However, there are no easy fixes and a turnaround such as this will take a significant amount of time, require substantial investment and investor patience,” Ehrlich said. “There are still many unknown strategic and financial details which will begin to be disclosed with 3Q earnings … as evidenced with the Warner Bros and Discovery combination, the restructuring will likely take years to implement.” Given these unknowns and considering the stock’s nearly 41% rally this year, its risk-reward ratio appears unfavorable in the near term, she said. PSKY YTD mountain Paramount Skydance performance this year. Further, the lengthy regulatory review has shone light on operational challenges, such as Paramount’s lack of capital investment for years, Ehrlich said. Although Paramount Skydance’s estimate of about $2 billion in cost savings should be achievable, the company’s simultaneous content investments could be a drag on its top-line growth, according to the analyst. “This [guidance] should help potentially provide a buffer from an acceleration of investments in other aspects of the business. However, given the significant amount of incremental content spend on the way, as well as headwinds in linear and a not-yet-profitable [direct-to-consumer] business, we see a challenging earnings growth outlook in the near-to-medium term,” Ehrlich said. Paramount CEO David Ellison on Thursday announced that employees must return to the office 5 days a week, and that those who do not wish to make the transition can seek a buyout. The mandate comes ahead of several planned postmerger cost cuts. Variety reported last month that the company is expected in early November to lay off between 2,000 and 3,000 employees .
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