BofA double downgrades Paramount to Underperform on lack of asset sales

BofA double downgraded Paramount (PARA) to Underperform from Buy with a price target of $9, down from $32. The firm’s prior bullish thesis and valuation methodology was predicated on Paramount’s inherent asset value in a potential sale, but it does not appear any significant asset sales are on the horizon despite the company receiving credible bids for several different assets, such as Showtime and BET, the analyst tells investors. Given the secular challenges in the traditional media ecosystem, the firm was surprised to see Paramount walk away from these potential buyers for various assets. While the firm recognizes management should try to extract maximum value, shares are down over 40% since May 1 and the firm’s concern is the longer it takes to execute potential asset sales, the less value they could ultimately garner. This, coupled with the challenging macro backdrop, persistent secular headwinds, negative free cash flow continuing into 2024 and the company’s elevated leverage “create an unfavorable medium-term outlook,” adds the analyst, who notes the firm’s multiple for Paramount represents a “modest premium” to the current trading levels of both Warner Bros. Discovery (WBD) and Fox Corp. (FOX) and a discount to Disney (DIS).