Shares of Paramount Global (PARA -2.22%) were sliding today after the entertainment company suffered a double downgrade from analysts at Bank of America, which came just a few days after the stock surged on its third-quarter earnings report.
The stock finished the session up 7.8%.
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Where are the asset sales?
Bank of America analyst Jessica Reif Ehrlich lowered her rating on the stock from buy to underperform with a price target of $9, down from $32.
In a note, Ehrlich said that the earlier bullish thesis was based on the company's asset value, but it doesn't appear that the company plans any asset sales in the near future even though it's received bids for properties like Showtime and BET. She also sees the value of those properties decreasing with time. Additionally, BofA sees a challenging macro environment and secular headwinds weighing on the business into 2024.
Can Paramount turn it around?
Last week, the company reported third-quarter earnings that gave a mixed picture of the business. Overall revenue was up 3% to $7.13 billion, which was slightly below estimates. Growth in its direct-to-consumer streaming segment was strong with revenue up 38% to $1.67 billion, but its linear TV division continues to experience declines.
On the bottom line, adjusted earnings per share fell 23% to $0.30, but that was better than the consensus of $0.09. Its base of Paramount+ subscribers continued to grow, with 2.7 million additions in the quarter to reach 63 million.
Ehrlich isn't alone in her assessment that Paramount's value lies in its assets, as some have speculated that Berkshire Hathaway owns the stock as an asset play as well.
The positive reaction from the market to Paramount's earnings last week could indicate that investors are sensing that the worst has passed, but an asset sale would also likely boost the stock and give the company money to pay down debt and invest in growth areas of the business.
Given the uncertainty in the streaming sector and the challenge in transitioning to streaming, expect the volatility in the stock to continue.
