WBD: Bidding War Expectations Will Likely Deflate Overextended Share Price

Analysts have raised their price target on Warner Bros. Discovery from $22.47 to $24.10 per share. They cite a modestly lower discount rate and expectations that intensified strategic interest and potential bidding scenarios around the studio portfolio can support a higher valuation, even with more conservative assumptions for growth and margins.

Analyst Commentary

Street research remains divided on Warner Bros. Discovery, with a cluster of recent upgrades and price target increases offset by growing concerns around deal execution risk and valuation after the stock's sharp run.

Bullish Takeaways

• Bullish analysts see a sale of the studio or the entire company as a realistic scenario, with implied takeout values often framed in the high 20s per share and the potential for a bidding war to push offers even higher.
• Several research notes highlight sizable potential cost synergies in a combination with Paramount Skydance, as well as strategic buyers that could unlock incremental value from the studio and HBO assets.
• Recent price target hikes into the mid 20s reflect growing confidence that a strategic review, asset separation, or outright sale could crystallize value faster than a purely standalone turnaround plan.
• Bullish analysts also point to underappreciated strengths in the global networks and streaming footprint, arguing that normalized earnings power for the studio and direct to consumer businesses is not fully captured in current estimates.

Bearish Takeaways

• Bearish analysts caution that the stock's valuation has moved ahead of fundamentals, leaving downside risk if no acceptable bid emerges or if negotiations with Paramount Skydance stall.
• Some research highlights regulatory and transactional friction for certain large tech and media suitors, which could narrow the field of credible bidders and cap upside from a competitive process.
• There is concern that management expectations for a premium price could overshoot what buyers are willing to pay, raising the odds of deal disappointment and a reversal of recent gains.
• Several notes stress that absent a transaction, Warner Bros. Discovery must still execute on a complex separation of streaming and linear assets while managing cyclical studio performance, a path that carries operational and execution risk for equity holders.

What's in the News

• Netflix entered a definitive agreement to acquire Warner Bros. Discovery for $71.5B. The deal values WBD at $27.75 per share in a cash and stock transaction expected to close within 12 to 18 months, alongside a planned spin off of WBD's Global Networks business (Key Developments).
• Paramount Skydance launched a competing all cash tender offer at $30 per share, valuing WBD at $77.3B. The proposal covers the entire company and is contingent on termination of the Netflix merger agreement and multiple regulatory approvals (Key Developments).
• Warner Bros. Discovery's board formally initiated a strategic review to weigh completing its planned split into Warner Bros. and Discovery Global against whole company or partial asset sales, following multiple unsolicited bids (Key Developments).
• WBD invited bidders, including Paramount Skydance, Comcast and Netflix, to submit improved offers after an initial round of bids. This signals an escalation of the auction process (Bloomberg).
• Netflix has emerged as a serious contender in the bidding war for WBD. The company has stepped up outreach to WBD and regulators as it challenges Paramount Skydance's early lead (New York Post).

Valuation Changes

• Fair Value: Raised modestly from $22.47 to $24.10 per share, reflecting a slightly higher implied equity valuation.
• Discount Rate: Reduced slightly from 10.88% to 10.55%, supporting a higher present value of future cash flows.
• Revenue Growth: Lowered significantly from approximately 0.77% to 0.26%, indicating more conservative top line assumptions.
• Net Profit Margin: Reduced sharply from about 18.8% to 2.7%, signaling a more cautious view on long term profitability.
• Future P/E: Increased substantially from roughly 1,073x to 8,125x, implying a higher multiple on reduced near term earnings expectations.