Shares in Warner Bros Discovery gained more than 5% to finish the trading day at $25.97 after earlier rising as much as 11% with a few more bulls piling into the new stock.
It is just the third day of trading for WBD, which moved sideways yesterday after starting off on Monday at $24.08. WarnerMedia formally spun off from AT&T and completed its $43 billion merger with Discovery last Friday. AT&T shareholders own 71% of the new company, though Discovery management is in charge. Volume was heavy, approaching six times the stock’s average.
The upswing came on a day of broader progress for the stock markets, with the Nasdaq up 2% and the Dow rising 1%. Other media and tech companies’ gains were generally more modest than Warner Bros Discovery’s, however.
Jessica Reif Ehrlich, a longtime media analyst with Bank of America, issued a full-throated endorsement of WBD in a report this morning, initiating coverage with a “buy” rating. Assigning a 12-month price target of $45, she wrote in a note to clients that the combined company is a “global media powerhouse” and “ready to hit the ground running.”
In Ehrlich’s view, the deal is “the third major media transformation in the last two decades,” after Bob Iger’s ascension to CEO of Disney in 2005 and Comcast’s acquisition of NBCUniversal in 2011.
“In our view, WBD management is strong across multiple areas: strategically, operationally and financially and has a strong track record of acquisition acumen,” Ehrlich wrote. “We believe management has spent the months leading up to closing developing a strategy to hit the ground running. Now it is time to execute on multiple levels, including building out a new organizational/ leadership structure, go-to-market strategy in [direct-to-consumer], and roadmap for realizing revenue/expense synergy potential.
Trading of the stock, the analyst warned, will be volatile in the short term. But one additional plus, in her estimation, is that the $3 billion in projected cost savings from the deal is “highly achievable, if not conservative.” A lot of investors and media types have their eye on that number, as it will correlate with an undetermined number of layoffs expected in the coming weeks.
AT&T shares, meanwhile, continued to drift, increasing a fraction to close at $19.42, below the $19.63 mark where they began the week. Prior to a merger-related stock split that boosted the telecom giant’s share price, it had barely crawled up from a multi-year low of $16.63 established last December.
While some Wall Streeters see the AT&T story as more appealing without the spun-off DirecTV or WarnerMedia, Keith Snyder with CFRA Research reaffirmed his “sell” rating on the shares.
The creation of Warner Bros Discovery “marks the end of AT&T’s disastrous foray into the media business,” Snyder wrote in a research note, “while leaving it with the considerable debt load it accumulated from its various acquisitions over the past few years. While we are glad to see the company return to its core competency, we note that it has a considerable amount of catching up to do in the 5G race.”