WBD Stock Is Running. Is There Fuel Left?

Yahoo Finance ·

After a powerful run to new highs, this media giant’s stock is asking every investor the same question: is the turnaround in streaming enough to carry the whole company higher? Shares of Warner Bros. Discovery (WBD) have rewarded investors with a 60% return over the last twelve months, a run that has the stock trading essentially at its 52-week high. The move places WBD in the top 23% of large US stocks on trend strength. For any investor sizing up a position now, the question is direct: is this momentum powered by a business engine with more fuel in the tank, or has the price already charged for the entire journey? The answer begins with the company’s successful pivot in streaming. Management has engineered a significant turnaround in its direct-to-consumer business, a key part of the investment thesis. The Streaming segment, which was losing over $2 billion in 2022, just generated $512 million in adjusted EBITDA in its most recent quarter. That progress is built on the strength of its HBO Max content, which is now a global service. But this engine is not firing on all cylinders. While the streaming story is strong, the broader company financials show the strain of legacy assets. Revenue over the last twelve months declined 6.1%, a sharp contrast to the S&P 500 median revenue growth of 8.3%. Profitability also lags, with an operating margin over the last twelve months of 6.1%, far below the S&P 500 median of 18.6%. The streaming success has not yet been enough to lift the entire enterprise. Is the Price of Admission a Bet on the Future? For a stock with such strong momentum , the valuation is not uniformly expensive. WBD trades at a price-to-sales multiple of 2.1, which is below the S&P 500 median of 3.1. This suggests the market is not paying an outlandish premium for the company’s nearly $36.12 billion in annual sales. However, its price-to-earnings multiple of -24.4 reflects a lack of recent GAAP profitability, making the story more complex. The real catch for a buyer at this price is execution risk in the studio segment. While streaming is stabilizing, the film business remains a game of hits and misses. Management has a long-term goal of generating over $3 billion in adjusted EBITDA from the studio, but recent films have underperformed. The company plans to ramp up its output from 14 films this year to 19 next year, increasing both the opportunity and the risk. A series of box office disappointments could quickly undermine the positive narrative driving the stock. Some investors might prefer to own the broader communication services theme rather than a single company’s execution story. A communication services ETF like XLC offers exposure to the sector, and WBD is one of its larger holdings. Still, for those focused on individual names, understanding how WBD’s own run began is a useful exercise. A recent analysis explored whether one could have seen this stock’s performance coming . Can the Studio Deliver on Its Tentpole Promise? Ultimately, the streaming turnaround is becoming a known quantity. For the stock’s momentum to continue, the studio segment must prove it can be a consistent and powerful contributor to the bottom line. The company is betting heavily on its deep well of intellectual property to make that happen. The film slate for next year includes major tentpoles like ‘Lord of the Rings,’ ‘Batman,’ and ‘Superman.’ The success or failure of these big-budget productions will be the clearest signal of the studio’s health. Therefore, the thing to watch is the takeover itself. Paramount Skydance has agreed to buy the company for $31 a share in cash, the stock closed at $30.83, and regulators have begun clearing the deal. Studio profit matters most to whoever owns these assets after it closes. If momentum backed by real numbers is your hunting ground, our Guidance Momentum screen tracks every S&P 500 name where a rising forecast is meeting real price strength. Ride The Winners Without Betting On Just One A quality business in a real uptrend is exactly what long-term returns are made of. The hard part is that any single run can end abruptly, and a rider concentrated in one name feels every stumble at full force. The Trefis High Quality (HQ) Portfolio holds roughly 30 businesses with the same DNA you just read about: strong margins, real cash generation, sound balance sheets, and sizing and re-balancing with rules. It has a track record of outpacing a benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. Enjoy this runner; own the whole stable.

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