By Dhirendra Tripathi
Investing.com – Discovery (NASDAQ:DISCA) shares fell 5% Tuesday after UBS said to sell the stock.
Even after the fall, UBS’s $46 price target is still 24% lower than the current price.
Discovery shares have risen by almost 284% from their lows last year, and UBS believes the current stock level poses a challenge to the risk-reward ratio as the gains from its streaming service Discovery+ appear to be priced in. The brokerage downgraded the stock from neutral.
UBS said while Discovery+ appears off to a strong start, it remained concerned regarding the ultimate scalability of the service in relation to the decline of the linear business and longer term impact on financials.
“We expect relatively stable EBITDA/FCF through 2024 as DTC growth is balanced against linear declines. Nonetheless, shares are trading at all-time high valuations and upside in streaming appears more than priced in. We estimate the implied valuation of the DTC business at 20x '23E revenues, well ahead of NFLX's historical range (6-10x)," StreetInsider quoted UBS as saying in its report.
UBS’s downgrade of Discovery follows last week’s similar action by Macquarie, which pegged its target for the stock at $52.