Paramount Global is lower at midday Monday – (NASDAQ:PARA) -3.6%, (NASDAQ:PARAA) -4.2% – as Wells Fargo trimmed its rating to Underweight, saying it can’t justify a premium multiple anymore in the face of declines in linear TV and uncertainty in streaming.
Paramount trades at 8.5 times the bank’s 2023 EBITDA estimates, analyst Steven Cahall notes – more than rivals Warner Bros. Discovery (WBD) at 7x, Fox (FOXA) at 6x, and AMC Networks (AMCX) at 5x, “and it’s even more expensive” on a price to free cash flow basis, he says.
Anchoring Paramount to its rival multiples results in at least a 7x multiple, which translates to $13 per share, he says, implying 29% further downside.
He arrives there through consolidating multiples rather than a sum-of-the-parts approach, since “linear and streaming face challenges of their own.”
His valuation is 3x on the linear business, comparable to peers who have entertainment content (unlike Fox) – which yields an enterprise value of $13.6B, down from $16B as “linear gets tougher on ad and affiliate.”
The streaming enterprise value is $6B, down from $8B, roughly similar to how he values Peacock (CMCSA). And in that valuation, he sees Paramount+ at $3.3B, “reflecting our view that DTC scale will be a challenge for all but the biggest participants.”
The $13 per share valuation marks a 5% free cash flow yield – a “significant” premium on that basis vs. Warner Bros. Discovery and Fox, he notes.
Street analysts rate Paramount Global a Hold on average, while Seeking Alpha authors tend to make it a Buy. Seeking Alpha’s Quant Ratings evaluates PARA as a Hold.