New York City-based media concern Warner Bros. Discovery, Inc. (WBD - Get Rating) distributes content in approximately 50 languages via multiple distribution channels globally. With more than 200,000 hours of content and some of the most renowned entertainment franchises, including DC Comics, Harry Potter, Lord of the Rings, Friends, the company is a global giant with a presence in more than 200 countries.

However, the stock has slumped 48.5% in price over the past year and 22.7% over the past month to close yesterday’s trading session at $18.88. In addition, it is currently trading 53.3% below its 52-week high of $39.70.

Also, the shares have shed 21% of their value since the merger between Discovery and WarnerMedia, after it was spun off by AT&T (T) last month.

Here is what could shape WBD’s performance in the near term:

Ratings Downgrade

Last month, Fitch Ratings lowered Warner Media, LLC’s Long-Term Issuer Default Rating (LT IDR) to ‘BBB-‘ from ‘BBB+’ and its senior unsecured issue rating to ‘BB+’ from ‘BBB+.’ These measures follow the completion of the merger of AT&T’s WarnerMedia holdings with Discovery Inc. on April 8, 2022. Discovery changed its name to Warner Bros. Discovery, Inc. (WBD). The rating outlook is stable.

Mixed Valuation

In terms of forward non-GAAP P/E, WBD is currently trading at 36.05x, which is 106.3% higher than the 17.47x industry average. Also, its forward Price/Book of 4.54x is 105.1% higher than the 2.21x industry average.

However, WBD’s 1.22x forward EV/Sales is 45.2% lower than the 2.23x industry average, and its trailing-12-months Price/Sales is 35% lower than the 1.45x industry average.

POWR Ratings Reflect Uncertainty

WBD has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. WBD has a C grade for Stability. The stock’s 1.13  beta  is consistent with the Stability grade.

Among the 21 stocks in the F-rated Entertainment – Media Producers industry, WBD is ranked #03.

Beyond what I have stated above, one  can view WBD ratings for Growth, Value, Momentum, Quality, and Sentiment here.

Bottom Line

WBD’s Revenues were about in line with analysts’ predictions at $3.2 billion, but its statutory profits per share (EPS) were above expectations, coming in at $0.69, a whopping 303% ahead of estimates. However, its shares are down 22.7% over the past month. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $24.39 and $26.09, respectively, indicating a bearish sentiment. Moreover, analysts expect its EPS to decline 101.1% in the current quarter (ending June 30, 2022) and 62.5% next quarter (ending Sept. 30, 2022). Therefore, we believe investors should wait before scooping its shares.

How Does Warner Bros Discovery Inc. (WBD) Stack Up Against its Peers?

While WBD has an overall C rating, one might want to consider its industry peer, News Corporation (NWSA - Get Rating), which has an overall B (Buy) rating.

WBD shares fell $0.03 (-0.16%) in premarket trading Friday. Year-to-date, WBD has declined -25.96%, versus a -12.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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