Media giant Paramount Global (PARA), previously known as ViacomCBS, recently reported mixed fourth-quarter results. While sales for the quarter beat the consensus estimate by 6.7%, adjusted earnings missed the Street estimate by 39.5%. The company announced that it would redeem all of its outstanding 3.875% senior notes due April 1, 2024, and 3.7% senior notes due August 15, 2024, as well as a portion of its outstanding 3.50% senior notes due January 15, 2025.

However, BofA analysts downgraded the stock from Buy to Neutral and lowered the price target from $53 to $39 as PARA faces near- and intermediate-term headwinds from high streaming content investments. The stock has lost 15.2% over the past six months to close yesterday’s trading session at $35.24. In addition, it is currently trading 65.4% below its 52-week high of $101.97, which it hit on March 15, 2021. So, PARA’s near-term prospects look uncertain.

Here’s what could influence PARA’s performance in the upcoming months:

Reasonable Valuation

In terms of forward P/B, PARA’s 1x is 59% lower than the industry average of 2.43x. Likewise, its forward P/S of 0.76x is 52.3% lower than the industry average of 1.59x. Moreover, the stock’s forward EV/S and non-GAAP P/E of 1.23x and 12.99x are lower than the industry averages of 2.30x and 18.48x, respectively.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

PARA’s revenue increased 16% year-over-year to $8 billion for the fiscal fourth quarter ended December 31, 2021. However, its adjusted OIBDA declined 53% year-over-year to $557 million, while its adjusted net earnings came in at $181 million, representing a 71.9% year-over-year decrease. Also, its adjusted EPS came in at $0.26, down 75% year-over-year.

Unfavorable Analyst Estimates

Analysts expect POSH’s EPS to decrease 67.1% in the current quarter, 37.1% in the next quarter, 20.7% in the current year, and 15.6% next year. Also, its EPS is expected to decline at a rate of 4.3% per annum over the next five years.

Lower-Than-Industry Profitability

In terms of trailing-12-month CAPEX/Sales, PARA’s 1.24% is 67.4% lower than the industry average of 3.79%. Likewise, its trailing-12-month gross profit margin of 37.93% is 26.4% lower than the industry average of 51.56%. Moreover, the stock’s trailing-12-month EBITDA margin of 37.93% is 26.4% lower than the industry average of 51.56%.

POWR Ratings Don’t Indicate Enough Upside

PARA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PARA has a C grade for Momentum, consistent with its 17.2% loss over the past nine months and 48.7% decline over the past year.

The stock has a C grade for Quality, in sync with its lower-than-industry profitability ratios. In addition, PARA has a D grade for Stability, consistent with its beta of 1.48.

PARA also has a D grade for Growth and an F grade for Sentiment. This is justified as analysts expect its EPS to decline in the near term.

PARA is ranked #11 out of 20 stocks in the F-rated Entertainment – Media Producers industry. Click here to access PARA’s ratings for Value as well.

Bottom Line

PARA could keep losing in the near term due to concerns over a steep increase in content spending and operating losses at its ramped-up DTC business over the next few years. So, it could be wise to wait for a better entry point in the stock.

How Does Paramount (PARA) Stack Up Against its Peers?

While PARA has an overall POWR Rating of C, you might want to consider investing in the following Entertainment – Media Producers stock with a B (Buy) rating: News Corporation – (NWSA).

PARA shares were trading at $35.24 per share on Thursday afternoon, down $0.00 (0.00%). Year-to-date, PARA has gained 16.77%, versus a -8.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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