PARA vs. WBD: Which Streaming Underdog Does Wall Street Prefer?

Using TipRanks’ Comparison Tool, we’ll compare two streaming underdogs that could become serious contenders: Paramount (NASDAQ:PARA) and Warner Bros. Discovery (NASDAQ:WBD). With an economic downturn and ad-based streaming boom up ahead, deep-value seekers may wish to give the fallen streaming underdogs a second look as they play catch up to the growing number of rivals. Although both firms have the potential to be winners, Wall Street currently favors WBD stock.

Fed-mandated recessions are never fun, but rate hikes are a potent tool to combat rapid price increases. Though investors are waiting for the Fed to show signs of a pivot (a shift from hawkishness to dovishness) down the road before getting back into stocks, investors shouldn’t hold their breath.

Even if the Fed were to consider pivoting after inflation went away, the recent bout of market pain might be necessary for driving prices lower and winning the battle against scorching-hot inflation rates.

Coming CPI reports could cause stocks to pop or drop in a hurry. In any case, beaten-down deep-value stocks with wide margins of safety may be attractive picks for reducing the sleepless nights of investors who are constantly thinking about inflation and the Fed.

Personally, I think the streaming scene is full of value that many investors may be discounting amid Netflix’s (NASDAQ:NFLX) fall from grace.

Paramount Global

Paramount Global stock just touched down with new 52-week lows not seen since 2020. The media firm and streaming underdog is now down around 77% from its early-2021 peak and 44% off its 52-week highs.

Eventually, Paramount will turn a corner, likely when the bear market ends. However, until then, this cheap stock keeps getting cheaper by the week. Legendary value investor Warren Buffett punched his ticket to Paramount stock. At 4.48 times trailing earnings, it’s hard to look the other way if you’re a deep-value investor.

Paramount has an uphill battle ahead of it, but at 0.7 times book value and 0.5 times sales, there’s next to no expectation baked in. I think Buffett is right on the money to be a buyer of PARA shares. The company’s direct-to-consumer (DTC) business is shining right now, with DTC revenue expanding by 56% in the most recent quarter.

Undoubtedly, Paramount+ growth will slow in due time. Given high industry churn rates, it’s tough to tell how many new subscribers will be sticking around a few months from now.

With intriguing exclusive content in the pipeline, look for Paramount+ to take even more share away from streaming incumbents like Netflix over the years. The streaming playing field is about to get leveled out, and it’s streaming underdogs like Paramount could stand out as one of the bigger beneficiaries.

For now, Paramount has been forced to sacrifice near- to medium-term profitability to jump aboard the streaming bandwagon. Ultimately, I think the move will pay off. Even if management can’t meet its upbeat 2024 subscriber targets, the stock already seems priced with minimal expectations baked in.

Is PARA Stock a Good Buy?

Wall Street is muted on Paramount Global stock despite Warren Buffett’s vote of confidence. The stock boasts a “Hold” consensus rating with six Buys, five Holds, and eight Sells. Indeed, uncertainties surrounding the firm’s DTC push and the coming recession are causing many analysts to err on the side of caution. The average PARA stock price target of $26.78 implies 20% in year-ahead upside potential.

Warner Bros. Discovery

Warner Bros. Discovery is another streaming underdog that investors have been quick to give up on. The firm had a disastrous market debut that saw shares get crushed from the gate. Indeed, it didn’t help that a brutal Netflix quarter deflated the last bit of hype out of the video-streaming industry around the time WBD stock went live on the Nasdaq.

Warner Bros. Discovery has big plans for the new year, as it looks to combine HBO Max and Discovery+ into one service. The duo could create a compelling value proposition within the streaming scene that could allow the firm to better stand up to its deep-pocketed rivals.

Warner Bros. Discovery’s CFO Gunnar Wiedenfels recently expressed his views that HBO Max and Discovery+ streaming services are “fundamentally underpriced.” I think a case could be made that shares of WBD are also fundamentally undervalued at a mere 0.6 times book value.

Though no details were given regarding the pricing of the combined HBO-Discovery service, one has to think that the new service will get a sizeable price hike to offset inflationary pressures.

In the meantime, Warner Bros. Discovery is looking to lean out, with production cuts across the board. The firm may move forward with layoffs as it looks to achieve $3 billion worth of savings. While the new HBO-Discovery service could beckon in more viewers, the firm will need to get spending again to become a credible streaming threat.

Cost cuts can cut too deep and impact a firm’s growth prospects. Fortunately, the firm is in good hands with CEO David Zaslav, who may shift gears into growth mode once streaming services are combined and the debt load is reduced.

For now, investors would rather wait on the sidelines until the “cutting” phase at Warner Bros. Discovery is over with.

What will be the Price of WBD Stock?

Wall Street seems more than willing to get into Warner Bros. Discovery amid its cutting spree, with a “Moderate Buy” rating based on eight Buys, six Holds, and one Sell assigned in the past three months. The average WBD stock price target is $24.58, implying nearly 92% upside over the next year.

Conclusion: Both PARA and WBD Stocks Have Upside Potential

Paramount and Warner Bros. Discovery may be streaming underdogs today. However, if they can execute their DTC growth plans as the streaming industry heals, I wouldn’t count either firm out. Both stocks trade at wide discounts to book value and look like compelling takeover targets.

Disclosure