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Disney and Warner Bros. Discovery Stocks: Promising Investments

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Andrew R. Michaud

• September 18, 2023

According to Raymond James analyst Ric Prentiss, now is the perfect time to consider investing in streaming stocks, particularly Walt Disney (DIS) and Warner Bros. Discovery (WBD). In a recent research note, Prentiss assigned both companies an Outperform rating, signaling his confidence in their potential for growth in the coming years. However, Prentiss was less bullish on Paramount Global (PARA), giving it a Market Perform rating instead.

Over the past few years, Disney, Warner Bros., and other media companies have faced significant challenges in adapting to the transformation of the television industry caused by the rise of streaming platforms. However, Prentiss believes that these companies have learned from their experiences and are now well-positioned for future success.

Despite prevailing negative sentiment surrounding the industry, Prentiss highlights the compelling cash flow growth and attractive shareholder return opportunities in media. Additionally, he emphasizes that media valuations have decreased significantly, making this an opportune time to invest.

The popularity of streaming as a preferred method of consuming media has surged in recent years. However, the industry has not been without its fair share of obstacles. Economic pressures have impacted the advertising business, leading to a decline in ad revenue across various media companies. Furthermore, strikes within the entertainment industry have caused delays in production and release dates of shows and movies.

Taking these concerns into account, Prentiss has set a $97 price target for Disney stock. This suggests a positive outlook for the company's future performance.

In conclusion, Walt Disney and Warner Bros. Discovery stocks present promising investment opportunities, backed by the anticipated growth in the streaming industry. Despite previous challenges, these companies have adapted and learned valuable lessons. With favorable valuations and potential returns, now is an ideal time to consider investing in these stocks.

Disney's Strong Position in the Streaming Market

Introduction

Disney, the entertainment giant known for its popular intellectual properties such as Marvel, Star Wars, and Pixar, is making significant strides in the streaming industry. With its bundled services and valuable content, Disney is driving higher Average Revenue Per Account (ARPA), reducing churn, and gaining pricing power.

The Impact of Intellectual Properties

WarnerMedia-Discovery Merger: A Powerful Combination

Paramount's Challenges

Paramount, on the other hand, faces unique challenges in the evolving media landscape. As the most exposed traditional linear TV company, Paramount's reliance on linear TV revenues has become a hindrance to its growth. While linear TV has been a profitable source of funding for media companies' streaming investments over the years, it is currently facing a continued secular decline. The decline in linear TV viewership negatively impacts Paramount's growth potential, counteracting improvements in streaming cash flows.

Conclusion

In summary, Disney's strategic bundling of services and their extensive intellectual properties contribute to their strong position in the streaming market. Warner Bros.' merger with Discovery adds further momentum to their streaming initiatives, driven by popular franchises. However, Paramount's heavy reliance on linear TV poses challenges in adapting to the shifting industry dynamics. As the streaming landscape continues to evolve, media companies must navigate these changes to remain competitive and ensure sustained growth.