BofA Remains Optimistic on Warner Bros. Discovery’s (WBD) Improved Strategic Flexibility

On June 2, Bank of America Securities analyst Jessica Reif Ehrlich reaffirmed a Buy rating on Warner Bros. Discovery Inc. (NASDAQ:WBD), maintaining her $14 price target.

While the company’s stock has underperformed since the merger of Discovery and WarnerMedia in early 2022, Ehrlich believes Warner Bros. still holds untapped value, supported by a portfolio of assets. She views the company’s recent internal reorganization and a shift in its credit profile as constructive developments that could broaden strategic options in the future.

A couple watching their favorite show on TV, enjoying the entertainment network service.

The reorganization split operations into two focused segments: Global Linear Networks and Streaming and Studios. This change, according to the analyst, is aimed at driving stronger profitability in the linear business while fostering growth across the content and streaming divisions. In her view, the new structure could improve operational focus and better position the company to consider strategic options such as spin-offs.

Interestingly, Ehrlich also sees the recent S&P downgrade of WBD’s debt to BB+, below investment grade, as a potential positive for shareholders. While such downgrades are usually seen as negative, she believes this one reduces a key obstacle. Previously, WBD was restricted by a clause that could make its debt immediately repayable if both a change in ownership and a downgrade occurred. Now that the downgrade has already happened, that clause is no longer a threat, giving the company more room to consider strategic options without risking its debt terms.

The analyst also notes several near-term catalysts that could support the investment case. These include easier year-over-year comparisons for the studio division, a potential rebound in advertising, and continued momentum in the direct-to-consumer segment.

Warner Bros. Discovery Inc. is a multinational media and entertainment conglomerate. Its portfolio includes prominent brands such as Warner Bros. Studios, HBO, CNN, Discovery Channel, Cartoon Network, and TNT, among others.

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Disclosure: None.