On Thursday, Rosenblatt Securities shifted its stance on Paramount Global (NASDAQ:PARA) from a negative 'Sell' rating to a more neutral 'Neutral' position, while also raising the price target for the company's shares from $9.00 to $13.00. The change in rating comes amid reports that the Ellison family's Skydance is in discussions to acquire National Amusements, owned by the Redstone family, which holds a significant voting stake in Paramount through dual-class shares.
Paramount Global is currently managing a substantial debt and pension obligation load, exceeding $13 billion. Despite this, the company's studio segment showed an adjusted EBITDA of $272 million in 2022, although it experienced a loss of $119 million in 2023. Analysts anticipate a modest recovery with an estimated $54 million in 2024, which implies a forward multiple of over 200 times.
The valuation of Paramount Global could see a significant increase if certain segments are assessed independently. For instance, disregarding the direct-to-consumer (D2C) streaming service, which faces competitive challenges, and valuing the television networks at a conservative 4 times the estimated 2024 EBITDA, the sum-of-the-parts (SOTP) valuation could surge to over $21 per share, an increase of more than 70%.
If the D2C segment is deemed viable, potentially valued at over one times sales, the SOTP could escalate further to above $30 per share, after taxes.
The potential acquirers seem to be interested primarily in Paramount's studio assets, aligning with concerns about the television and D2C streaming divisions. This interest hints at a possible breakup of the company, an outcome that Shari Redstone, a major stakeholder, may oppose. Should she block a deal, the value of Paramount shares could face downward pressure.
Despite a 12% rise in share price on Wednesday, Paramount's stock has seen a 15% decline year-to-date. The shares are also 48% below their 52-week high and have fallen 69% since the December 4, 2019, re-merger of CBS and Paramount.
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