Bank of America’s securities research team sees the spinoff drama at Warner Bros. Discovery over its linear TV, studios and streaming businesses worth viewing for outsized investor returns.“We believe the market value for Warner Bros. Discovery’s Studio and DTC (direct-to-consumer) assets standalone could far exceed the market cap of the company today,” BofA Securities analyst Jessica Reif Ehrlich said in a June 2 investor note. A break up of Warner Bros. Discovery since its 2022 merger has long been weighed as a possibility among Wall Street analysts, and Ehrlich sees a potential spinoff of Warner Bros. Discovery’s linear TV assets doing the job of strategically unlocking unrealized shareholder value.A possible scenario would see Warner Bros. studios paired with Max, leaving the Discovery linear cable channels to be carved off and left to operate standalone — a potential model NBCUniversal is doing with Versant. “Further, as a standalone linear asset, we believe there is an opportunity to consolidate a long tail of linear assets (e.g. Versant) that are currently housed within other media organizations,” Ehrlich argued.While the cable business used to be a cash driver for studios, the TV channels lately have become a drag on earnings, and investors have dinged companies that have been weighed down by channels tied to bundles that have fast fallen out of out of favor with consumers who’ve spent instead on individual streaming services. NBCU is spinning off most of its cable assets — minus Bravo and including CNBC — into a new company called Versant.No potential split of Warner Bros. Discovery has been formally announced. But the major studio has already begun to reorganize the company with an eye to a possible spinoff of its legacy TV assets. In Dec. 2024, the studio said it had reworked its corporate structure into a global linear TV division, separate from its streaming and studios division.Warner Bros. Discovery added it had begun the early steps leading toward the new corporate reorganization, with a completion set for mid-2025. Ehrlich said the new corporate structure was designed to “enhance strategic flexibility and create potential opportunities to unlock shareholder value”, as Warner Bros. Discovery operates in two divisions.The Wall Street analyst also addressed Warner Bros. Discovery recently being downgraded to BB+, or junk bond status, for 2025 and 2026 by S&P Global over linear TV weakness as the Hollywood studio continues to pivot to the streaming space. “Ironically, we view this as a positive development,” Ehrlich wrote as the downgrade potentially contributes to Warner Bros. Discovery’s balance sheet flexibility.Gunnar Wiedenfels, CFO of Warner Bros. Discovery, on May 15 during an investors conference appearance put no timing on possible “strategic action” at the company to better reveal the underlying value of studio assets. “I can’t give a specific timeline, and there is no specific timeline. But we definitely share the view that our current share price is not reflecting the underlying the value of our company,” he said.The BofA Global Research analyst maintained a buy rating and a price target of $14.00 for shares in Warner Bros. Discovery. The studio’s stock was trading up 5 cents to $9.98 in early afternoon trading on Monday.
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