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Sell Paramount as streaming competition intensifies, Goldman Sachs says


Now is the time to sell shares of Paramount as growing macro headwinds put pressure on the company’s ability to fulfill its streaming agenda, according to Goldman Sachs. Analyst Brett Feldman said in a note to the client Tuesday that the media company is trading at a premium to many of its peers, but the bank sees “limited near-term valuation support.” “Our downgrade reflects a view that macro headwinds are likely to intensify pressures on PARA’s EBITDA and FCF through at least 2023, which we believe increases the risk that the company will be able to execute its streaming strategy in a market that is already seeing intensified competition,” Feldman wrote. Going forward, Feldman believes that Paramount continues to offer “rich IP and scaled content production assets” which could benefit the company in the future, but the market is unlikely to appreciate these offerings in the near term given the current environment. To be sure, Feldman does expect the company’s main streaming service Paramount+ to gain traction this year, in part due to launches in new markets and a strong slew of content. “However, if macro or secular pressures on its legacy businesses intensify, for example further headwinds to advertising or accelerated cord-cutting, then we believe that PARA may need to make more difficult decisions on where to allocate investment,” Feldman wrote. “Put another way, as the near-term operating environment becomes more difficult, so do PARA’s choices.” Along with the downgrade, Feldman nearly halved the bank’s price target on the stock to $20 from $37 a share, meaning the stock could potentially plummet 21% from Monday’s close. Shares have already dipped about 16% this year. In the same note, Feldman trimmed Disney ‘s price target and lowered advertising revenue estimates for the streaming giant. He also reinitiated coverage of Warner Bros. Discovery as a buy, saying that the company’s direct-to-consumer opportunity “looks materially undervalued.” Shares of Paramount slipped nearly 5% in premarket trading. — CNBC’s Michael Bloom contributed reporting

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