Paramount gets boost as Wells Fargo bumps rating on increased chances of M&A

Paramount (NASDAQ:PARA) (NASDAQ:PARAA) shares rose slightly more than 2% in premarket trading on Wednesday after Wells Fargo upgraded the media giant, citing the belief of a higher probability of a deal.

Analyst Steven Cahall raised his rating to equal weight from underweight and boosted his price target to $18, noting that Shari Redstone, the president of National Amusements, has reportedly considered selling the movie studio and other assets amid reported interest from Skydance and other interested parties.

"We continue to believe that [National Amusements] might like to sell a controlling stake to a content operator that would protect the significance of Paramount Studios. i.e. willing buyer(s), willing seller," Cahall wrote in an investor note. National Amusements is the controlling shareholder of Paramount.

Cahall added that a future owner of Paramount (PARA) (PARAA) could get rid of the non-content assets and shut down its Paramount+ streaming service. He put the total value on Pluto, CBS Network and the owned and operated networks at roughly $10B, after tax.

"We est. pro-forma ND/EBITDA of 2.4x with remaining PARA a content supplier, and a strong one at that," Cahall wrote. "A shutdown of [Paramount+] could generate more licensing (e.g. NFL streaming rights, films, originals)."

Cahall added that Wells Fargo expects there to be continued consolidation in the media space in 2024. There has been speculation that Comcast (CMCSA) could look to acquire Warner Bros. Discovery (WBD) and Disney (DIS) has talked about bringing in partners for its ESPN business as well as its struggling operations in India.

"Media faces secular challenges, but those causes tend to have the effect of consolidation," Cahall added, pointing to AT&T's (T) deal to acquire Time Warner (which eventually merged with Discovery to form Warner Bros. Discovery), Discovery's acquisition of Scripps, Disney's acquisition of 21st Century Fox and several other mergers.

Analysts are largely cautious on Paramount (PARA). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates PARA a HOLD.