Warner Bros. Analyst Sees Rebound Ahead: Box Office Gains, DC Relaunch, Spin-Off Plan Could Unlock Hidden Value

Core Viewpoint - Bank of America Securities analyst Jessica Reif Ehrlich maintains a Buy rating on Warner Bros. Discovery (WBD) with an increased price target of $16, up from $14, anticipating strong second-quarter earnings driven by box office performance despite challenges in the linear business [1][5]. Group 1: Financial Performance - WBD's second-quarter revenue is expected to be $9.56 billion, with adjusted EBITDA projected at $1.79 billion [4][7]. - The Studios segment is anticipated to show significant year-over-year EBITDA growth, with adjusted EBITDA raised to $651 million from $625 million [4][7]. - The DTC segment's adjusted EBITDA is expected to decrease to $292 million from $318 million [7]. Group 2: Business Segments and Challenges - The linear business faces challenges, particularly in general entertainment, although there is strength in sports advertising [3]. - The market is stabilizing as peak tariff uncertainty passes, but advertising comparisons may be more challenging due to the airing of the Final Four on CBS instead of TBS this year [3]. Group 3: Strategic Developments - WBD plans to separate into two publicly traded entities in a tax-free transaction, which is seen as a way to unlock significant unrecognized value [5]. - The company has reduced net debt by approximately $2 billion through a tender offer, although associated fees and taxes will lower reported free cash flow by about $1 billion [6]. Group 4: Upcoming Releases - The relaunch of the DC Universe with the release of "Superman" in the third quarter could be a critical driver for the studio's turnaround, impacting multiple business areas including Film, DTC, consumer products, gaming, and experiences [2].