Why a Wall Street Analyst Just Upgraded Warner Bros. Discovery But Downgraded Fox’s Stock

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From a cinema enthusiast’s perspective, I’m keeping a close eye on the future prospects of Hollywood stocks in 2025. On a recent day, Robert Fishman, an analyst at MoffettNathanson, upgraded Warner Bros. Discovery (WBD) but surprisingly, he also downgraded his rating for Fox Corp shares.

In essence, the report titled “Clock Is Ticking” suggests that the topics of 2025 could be extensions of those seen in 2024, which poses a challenge for several media companies. Last year was one that many were eager to leave behind, but this new phase might deliver more of the same to already weakened players. Linear media seems destined to keep moving along its current path, and it appears that meaningful direct-to-consumer profitability for smaller players is still a few years away.

I’ve come to a cautionary point: “Over the course of these years, the operational leeway for many of these companies has become distressingly narrow.” (First person perspective)

If the fundamental aspects worsen more swiftly than anticipated in the current year, there could be a surge in efforts to merge or consider alternative strategies. As Fishman put it, “Such a scenario would increase the need for exploration of consolidation and strategic options.” Potential targets for consolidation might include film studios, streaming platforms, and cable networks, among others.

The reason for his recent stock adjustments, as detailed in the report, is primarily due to changing his stance on WBD from “neutral” to “buy,” and shifting Fox from “buy” to “neutral.

So far, Fishman has pointed out that WBD’s financial status and high debt levels have made us hesitant to invest. However, he mentioned that in the year 2025, the company will benefit from the stability provided by its recent major affiliate fee renewals, as well as ongoing growth at Max and a decrease in studio-related challenges. The CEO of WBD is David Zaslav.

Simultaneously, it was pointed out that “WBD’s long-term strategy remains undefined.” This added clarity makes the company’s assets even more appealing, and the growing need for management to implement transformative changes could mean WBD will actively participate in keeping merger and acquisition advisers occupied. Given these factors, we now anticipate a substantial increase in the current equity values.

In simpler terms, MoffettNathanson’s analyst indicates that while Fox is facing some challenges in its environment, it maintains a unique and strong position. This strength, combined with potential mergers and acquisitions, has caused a rise in the stock price. Yet, Fishman cautions that investor doubts about the sustainability of Fox’s high cash flows might prevent further increases in the stock price from these current high levels.

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2025-01-21 18:54