A leading analyst sizes up the impact on the future growth of Paramount Global (NASDAQ:PARA) (NASDAQ:PARAA) after the media company announced a merger with Skydance.
The Paramount Analyst: Benchmark analyst Daniel Kurnos has a Buy rating on Paramount and a $19 price target.
The Analyst Takeaways: The merger between Paramount and Skydance ends months of speculation of who would acquire the media company, Kurnos said in a new investor note.
"We finally have an official announcement on the board for Paramount that should, hopefully, bring about a close to this real-life drama," Kurnos said.
The analyst said that a 45-day go-shop window could see other bidders on Paramount.
"This is probably the best strategic deal Paramount is likely to be offered that comes closest to satisfying all parties, at least in part."
Kurnos said there is upside ahead for Paramount based on estimates from Skydance that are "achievable" and the analyst's own estimates.
"Understanding that the road will likely be very uneven, we think shares are worth a shot at the current price."
New management is more open to monetizing content on third-party platforms and being part of streaming partnerships and joint ventures, the analyst added.
"It is difficult to tell if management is being conservative, assuming a more focused, paired down strategy, or how much is expected from asset sales."
Read Also: Paramount Analysts Size Up Merger: Skydance Aims For Earnings, 'Not A Breakup,' Redstone Says Content Is King
Kurnos noted that the decline in Paramount shares following the merger indicates investor dissatisfaction with the current deal, as well as skepticism about the prospects of a more favorable one emerging. He also pointed out that issuing equity to Skydance dilutes existing shareholders' stakes.
The analyst estimates that a $14 bear case is a "reasonable valuation shorter-term" and places an $8 worst-case scenario price target on the stock. The analyst's bull case and "pie-in-the-sky outcome" is $26 per share for Paramount in the future.
Kurnos said estimates from the Skydance team could be conservative when it comes to synergies and growth.
"We cannot imagine Skydance setting a high bar out of the gate."
A blended mix of outcomes sees the analyst highlight the risk reward potential of the stock, with 15% risk to the downside and 30% upside to the Skydance forecast.
"We think the range of outcomes looks something like this, with a bit more weighting towards our upside scenario than the bear-case view given our fundamental work."
PARA Price Action: Paramount shares were up 3.1% to $11.53 on Tuesday, versus a 52-week trading range of $9.54 to $17.50. Paramount stock is down 24% year-to-date in 2024.
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