Any conversation about the most successful investors of all time should certainly include Berkshire Hathaway CEO Warren Buffett. The legendary investor has been dubbed the "Oracle of Omaha" for his uncanny and consistent ability to uncover winning investments that others may have overlooked (and in reference to his birthplace of Omaha, Nebraska).
Buffett has run the company for nearly six decades, amassing a track record that's unmatched. Since he became CEO in 1965, Berkshire Hathaway stock has gained nearly 20% annualized and overall has increased by a mind-boggling 3,787,464%.
It isn't surprising, then, that investors pour over Berkshire's stock picks, looking for diamonds in the rough. One particularly intriguing stock with multiple ways to win is Paramount Global (PARA -2.22%) (PARA.A). The stock is down roughly 86% from its peak, but there are a number of potential catalysts that could drive the shares higher after a challenging couple of years. In fact, one analyst believes the stock could soar as much as 115%.
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Much more than just streaming video
While many investors tend to focus on Paramount+, the company's streaming video platform, it's important to take a step back and examine the business holistically so as not to overlook the media company's valuable portfolio of diversified entertainment offerings.
During the first three quarters of 2023, CBS retained the crown as the No. 1 television broadcast network, an ongoing streak that has lasted for 15 consecutive years. Furthermore, the network continues to boast some of the most-watched programming on broadcast television, including NCIS, Young Sheldon, Blue Bloods, and FBI, among others. Additionally, NFL on CBS delivered "its best season viewership in years," according to the company.
Paramount Pictures -- the company's movie studio -- had several major notable releases last year such as Mission: Impossible -- Dead Reckoning Part One and Transformers: Rise of the Beasts.
Then, there's the company's streaming segment, which includes subscription service Paramount+ and ad-supported platform Pluto TV. The media titan has a wealth of content available with more than 200,000 television episodes and 4,000 movies from CBS, BET, Nickelodeon, MTV, Comedy Central, and, of course, Paramount Pictures.
Paramount+ also hosts a broad cross-section of programming for sports lovers. The company controls broadcast rights to every local NFL game broadcast on CBS, part of an 11-year, multiplatform rights contract signed in 2021. In 2023, its viewers had access to 38 regular season and three playoff games. The platform also offers a variety of other sports, including NCAA basketball, PGA golf, European soccer, and more.
During a difficult market environment for streaming services, it appears Paramount is making headway. In the third quarter, revenue at Paramount+ increased 61% year over year, while its audience expanded to 63 million global subscribers. At the same time, the average revenue per user (ARPU) jumped 16%. Engagement also improved as combined global viewing hours from Paramount+ and Pluto TV soared 46%.
As a result of these and other improvements, revenue of $7.1 billion grew 3% year over year, while earnings per share of $0.36 surged 71%. Excluding the TV media division -- which continues to suffer from softness in the global advertising market -- Paramount saw gains in each of its major operating segments. Perhaps more important to investors, after four consecutive quarters of burning cash, Paramount generated $377 million in positive free cash flow.
A huge vote of confidence from Wall Street
Late last year, Benchmark analyst Daniel Kurnos maintained his buy rating on Paramount Global, setting a price target of $30, suggesting the stock could surge about 115% from where it trades as of this writing. His opinion of the company's prospects has been remarkably consistent: He had a buy rating and a $31 price target dating back to the beginning of 2023.
The analyst didn't provide any updated commentary about Paramount Global's overall outlook but had previously cited a rebound in licensing revenue, an improving advertising landscape, and a resulting acceleration of ARPU as reasons to be bullish. He did, however, address reports of a potential merger with Warner Bros. Discovery that emerged last month. If it did come to fruition, the analyst believes the deal could unlock between $3.2 billion and $4.9 billion in synergies.
Paramount Global has recently become a hot property, and Warner Bros. Discovery isn't the only one interested in a deal. Reports also emerged last week that a group of investors led by David Ellison has been in talks to acquire privately held National Amusements, which owns a 77% stake in Paramount Global. Buying a stock based on the potential for a buyout is normally folly, but it adds to the growing evidence that Paramount is currently undervalued.
After falling significantly from its peak, Paramount Global's valuation is absurdly low. The stock is selling for just 12 times forward earnings. This cheap price was likely a contributing factor to Berkshire Hathaway's decision to accumulate shares of Paramount Global over the past few years. The stake now amounts to 93.7 million shares worth more than $1.3 billion, or roughly 14% of Paramount's outstanding stock.
Given its potential for growth, the value of its multimedia portfolio, and its bargain-basement price, Paramount Global is one Warren Buffett stock to buy before its rally begins in earnest.
