Mixed news from Paramount Global (PARA -2.22%) Wednesday got a muted reaction from investors Thursday. On the one hand, Paramount reported positive profits of $0.04 per share in Q4, despite analysts predicting a loss. On the other hand, Paramount fell $200 million short of revenue predictions, generating only $7.6 billion for the quarter. Ultimately, investors decided it was a wash, and Paramount shares closed the day just slightly up.
There was also mixed news coming out around the time the report was released.
On the plus side, an analyst at investment bank Benchmark thinks Paramount stock will soar 67% from here, and hit $19 a share within a year.
On the downside, the Benchmark analyst cut Paramount's price target by more than one-third, as TheFly.com reports, responding to media reports that Warner Bros. Discovery is no longer interested in buying Paramount. Such a purchase would presumably have come at a premium, justifying a higher price target for the stock. Without a buyout, it became necessary to drop the target down a bit.
Is Paramount stock a buy?
Not all the news is bad. Benchmark came away from Wednesday's report encouraged by Paramount's return to positive free cash flow, and the analyst predicted other analysts will raise their FCF and operating income forecasts for the stock, encouraging more investors to buy in.
But I'm less sure.
Paramount performed admirably in Q4, delivering its second straight quarter of positive profits ($514 million) and positive free cash flow ($329 million). But Paramount still ended the year with a net loss of $608 million, though, and its 2023 FCF topped out at $147 million. At a market capitalization of $7.6 billion, the stock costs nearly 52 times FCF. When you consider further that Paramount carries $13.4 billion more debt than cash on its balance sheet, raising its enterprise value to $21 billion, the resulting EV/FCF ratio of more than 140 seems a little rich to me.
Benchmark may think this streaming stock is a "buy." I disagree.
