Warner Bros. Discovery stock, hammered since the media giant was forged in the merger of Discovery and WarnerMedia, is up 28% in the last five days and analysts are starting to see an upside following billions of dollars worth of charges against earnings for restructuring and programming write-offs.

On Tuesday, Warner Bros. Discovery shares closed at $12.56, up more than 8% from the prior day. The rise was powered by positive analyst reports from Goldman Sachs and Bank of America.

When it reports its fourth-quarter earnings, Warner Bros. Discovery will be taking changes against earnings of $4.1 billion to $5.3 billion, capping a year in which CEO David Zaslav undid many of the strategic decisions made by WarnerMedia management and noted that the company was in worse financial shape than WarnerMedia’s projections suggested.

Wall Street thinks the company has cleared the decks and is headed in a new direction.

“We believe 4Q is an opportunity for management to turn the page to 2023 and reset the narrative,” BofA Securities senior media and entertainment analyst Jessica Reif Ehrlich said in a research note that rates WBD stock as a buy and as part of the brokerage’s US 1 list. She sees the stock rising to $21 a share.

“At this point, the majority of heavy lifting (related to restructuring charges etc.) has been completed; direct-to-consumer (DTC) losses peaked in ’22, with a path to breakeven in ’24; and the cyclical headwinds should abate as macro conditions improve,” Reif Ehrlich said. 

“It already appears January advertising trends have improved sequentially (albeit off a modest base) from December,” she said. “Levels and comps would ease as the year progresses. In addition, WBD has renewed over 30% of affiliate deals at attractive pricing terms, which should help mitigate the secular challenges related to cord-cutting. This, coupled with the spring launch of a new combined DTC service, a more robust film slate, incremental synergies and de-risked consensus forecasts makes WBD’s risk/reward highly attractive at current levels.”

Reif Ehrlich is lowering her forecast for Q4 revenue to $11.14 billion, but increasing her forecast for Q4 EBITDA. For 2023, she expects WBD to generate revenue of $43.3 billion and EBITDA of $11.3 billion.

Goldman Sachs analyst Brett Feldman included Warner Bros. Discovery stock in his top picks for 2023.

“While WBD confronts many of the challenges facing traditional media companies (cord-cutting, macro pressure on advertising, intense streaming competition), the stock trades at 6.5 times 2023 estimated enterprise value/EBITDA, which is at the low end of comps (6.5-15 times),“ said Feldman, whose target price for WBD shares is $19. “However, we estimate that WBD is best positioned to drive EBITDA growth, ramp free cash flow and de-lever its balance sheet in 2023 as it pursues $3.5 billion of merger synergies and relaunches its flagship streaming service.”

The enthusiastic analyst reports follow an appearance a week ago by WBD chief financial officer Gunnar Wiedenfels at the Citi Communications, Media & Entertainment Conference for investors.

At the conference, Wiedenfels said the debt-laden company was finished reducing staff and removing content from HBO Max in order to save money by reducing royalties and taking tax write-offs.

“That was very important to all of us, to really use 2022 to leave the purchase accounting behind us, leave those initial strategy changes behind us, get it all out there in terms of our restructuring estimates and then be able to turn the page forward,” he said. “I think the team has laid a great foundation and I’m really excited about the growth from here.”

Feldman said his favorite cable stock is Charter Communications, with a 12-month price target set at $422 a share.

“Cable stocks were significant underperformers in 2022 as they faced increased competition from fiber and fixed wireless that drove material declines in broadband net adds,” Feldman said.

“We believe the setup for Charter is more attractive heading into 2023 based on three key factors. 1) We expect Charter’s broadband net adds to show improvement throughout 2023 driven by its rural footprint expansion, network upgrades, and moderating levels of fixed wireless net adds. 2) Following Charter’s analyst meeting in December 2022, we believe investors’ expectations have been reset for capex, FCF and buybacks. 3) Valuation looks attractive, with Charter trading at 7.3x 2023E EBITDA vs. 6.5-7x for most telecom and cable comps vs. our outlook for materially faster EBITDA and FCF/share growth.” ■

The same day the company launched a major broadband initiative, Comcast executive VP, deputy chief financial officer and treasurer Jason Armstrong told an industry audience that while fixed wireless competition may be getting a lot of attention lately, the bigger threat to the cable business is coming from fiber broadband providers.

On Thursday, Comcast unveiled a multi-gig broadband strategy that will bring higher speeds and DOCSIS 4.0 capabilities to 50 million homes by the end of 2025. At the Bank of America Securities Media, Communications & Entertainment Conference, Armstrong said that the rollouts are further proof of Comcast’s broadband superiority.

Comcast’s broadband subscriber growth was flat in Q2, as the rest of the industry struggled with subscriber losses during the period. While there have been several factors attributed to the accelerated slowdown in cable broadband growth -- sluggish new home formation, minimal housing moves and the transition to a new federally subsidized program for low income families -- competition from both fixed wireless and fiber-based broadband providers have emerged as significant players. Fixed wireless access has gained momentum after T-Mobile reported adding 560,000 FWA customers in Q2 and yesterday Charter Communications CFO Jessica Fischer said while the technology hasn’t made a major dent in broadband growth, it is still a factor.

While Armstrong acknowledged fixed wireless, he saw fiber as a bigger threat. And he noted that during the period when fiber competition went from 0% to 40% of Comcast’s footprint, Comcast became the No. 1 broadband provider in America with 32 million customers, even adding 3 million subscribers during the pandemic.

“Dave [Watson, Comcast Cable CEO] and his team have had a terrific playbook against fiber,” Armstrong said. That will continue for the foreseeable future.”

But Armstrong was less concerned about fixed wireless, which he said is enjoying some popularity because of its low cost, but still falls short on speeds -- which average between 5 Megabits per second and 50 Mbps -- and reliability.

“Fixed wireless is newer. It’s new, it's national, a gross add equals a net add because there’s not any churn in the system, although there will be,” Armstrong said. “When you step back and say,  ‘longer term, how do we compete, how do we win?’ fiber is the real long-term competitor.

“Fixed wireless is clearly having its moment right now, but when you think about the product offering and the long term competitive  advantages, I think we feel great about our positioning,” he continued.

While he admitted that it is going to be more difficult to grow broadband subscribers in the current macro environment, Armstrong noted that Comcast has been down this road before. In 2017, the company’s largest competitor aggressively lowered its broadband prices, but Comcast held its ground, keeping its ARPU stable and subscriber growth rebounded the next year.

“You don’t chase disruption at the low end or the value conscious end of the base and disrupt the whole base by doing it,” Armstrong said. “...I think that’s the way you treat this.”

He also mentioned Comcast’s strong performance in wireless -- it added 317,000 Xfinity Mobile customers in Q2, its best Q2 ever -- and Business Services as growth drivers for the future.

“You add all this up and it tells you we have great growth runners in cable,” Armstrong said. "We absolutely have the ability to continue to grow that business.” ■ 

Media analysts threw ice-cold water on a Wall Street Journal report Wednesday suggesting that Comcast may buy ViacomCBS and/or Roku. 

"From a regulatory standpoint, ViacomCBS is a non-starter with network/station overlaps, even before considering whether network/content production market share would be an issue," Credit Suisse's Douglas Mitchelson wrote in a note to investors Thursday morning. 

As for Roku, the analyst believes the Silicon Valley streaming company's $56 billion-plus market cap makes acquisition of it cost-prohibitive. 

"Acquiring Roku would be highly dilutive and likely lever Comcast's balance sheet (something that management has been clear it will not do near-to-mid term), in pursuit of a new out-of-market connected TV strategy with unclear longer-term barriers to entry and customer acquisition costs, and which management has already been building internally," Mitchelson said. 

Meanwhile, Bank of America analyst Jessica Reif Ehrlich said Comcast's so-called PlatCo initiative, in which it's working with Walmart and Hisense to make smart TVs powered by a Comcast OS, is in competition with Roku. 

"We believe a Roku acquisition would be duplicative with [Comcast's] own Flex hardware and would add nothing from a content/IP perspective," Ehrlich said in a morning investor report. 

Comcast is reportedly in the process of evaluating bold M&A moves as it tries to bolster the position of Peacock in the ultra-competitive video streaming race. 

In a Thursday research note, Barclays media analyst Kannan Venkateshwar wrote that outside the obvious regulatory obstacles to additional M&A for Comcast, he remains skeptical that Comcast would consider buying ViacomCBS or Roku.

It’s only been a few weeks since Comcast chairman and CEO Brian Roberts and chief financial officer Michael Cavanagh were making the rounds at virtual industry conferences telling analysts and investors that there was no desire for a big deal. So doing a big deal, according to the analyst, would be a blow against Comcast’s credibility. 

Still, Venkateshwar said it was difficult to dismiss Comcast’s M&A intentions, given its deal-making track record. Although a Roku deal could give the company a streaming advantage when coupled with its NBCUniversal and Peacock assets, he believed it would be better to build than buy.  

Given Roku’s $56 billion market cap, Venkateshwar said it would make more sense for Comcast to give out free Flex devices to every household in its Comcast/Sky footprint.

“Comcast also has the choice of spending more money on Peacock and making that a free, ad-supported service, which would make it potentially bigger than the Roku Channel, especially given Comcast’s own footprint,” Venkateshwar added.

Wells Fargo media analyst Steven Cahall noted that Comcast’s past M&A endeavors have resulted in a big dip in its stock price, which should be catalyst enough to discourage any buying spree.  

Also Read: Warner Bros. Discovery is No Streaming Powerhouse Yet, Analyst Says 

In a Thursday report, Cahall wrote Comcast stock dropped about 23% between January 2018 and June 2018, the period it was in a bidding war with Disney for the Fox assets. 

“We think investors have just regained confidence that an uninterrupted buyback period is coming, and this confidence will now be shaken,” Cahall wrote. “Given other Media consolidation (e.g. Discovery/WarnerMedia, Amazon/MGM) we think it will be tough to lay M&A fears to rest short of levering up for a buyback.” 

Cablevision Systems vice chairman and chief financial officer Gregg Seibert said the Bethpage. N.Y. based cable operator is looking toward eventually monetizing its WiFi network, a data service that at least until now has been free to existing high-speed data customers and used more as a retention tool.

While he didn’t say just how Cablevision would go about it, Seibert said at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference in Los Angeles Tuesday that it a hot topic of conversation among company executives.

“Our next leg of growth should be involved in the monetization of the WiFi network we built,” Seibert said. “We were first in WiFi, I believe we have the densest WiFi footprint in the business. The challenge now is making sure our customers are aware of the great value that provides to them and ultimately we can get additional revenue out of that business in addition to just getting the benefit from a customer retention standpoint.”

For example, Seibert said Cablevision customers save about $30 per month on their cell phone bills by being able to access data over the Cablevision WiFi network.

“That’s very substantial,” Seibert said at the conference.

Cablevision was an early champion of WiFi Service –  in 2008 it said it would spend about $300 million building out its WiFi network   – and has one of the largest WiFi hotspot footprints among cable operators. Siebert said the company is on track to reach 1 million WiFi hotspots by the end of the year.

Seibert said that Cablevision has no big product announcements on the immediate horizon, although it does test new offerings constantly, many of which are in the WiFI space. One area it won’t be concentrating on in the near term is home security.

Although other operators like Comcast and Cox have had success on the home security front, Seibert said the market in Cablevision’s footprint doesn’t warrant an offering.

“While we never say never, you won’t see us introduce a home security product in the next year or so,” Seibert said.