Truist sees Warner Bros Discovery’s HBO Max relaunch driving renewed subscriber momentum

By Sam Boughedda

Truist analysts initiated coverage of Warner Bros Discovery (NASDAQ:) with a Buy rating and $19 per share price target in a note Monday.

The analysts laid out four reasons for the rating, including the HBO Max relaunch to drive renewed subscriber and ARPU momentum, the multi-year deleveraging to support equity value, DC pursuing the Marvel playbook with an opportunity to narrow a significant IP exploitation gap, and upside to the company’s 2024 AEBITDA.

They explained that previously, Max has had limited marketing, no ads against HBO content, and has not been available through Prime Video.

“Looking forward, WBD is set to relaunch Max (existing and new markets; 2023 through 2024) with Discovery+ content (unscripted, female-skew vs. Max scripted, male-skew), marketing support (and improved product), ads against HBO content on AVOD (sponsorships, pre-rolls), and available through PV. We expect renewed momentum in subscribers (gross adds, retention) and ARPU (consumer, ads) with optionality around premium (sports, news) and FAST tiers.”

Truist expects WBD’s “net debt-to-AEBITDA to improve from 5x in 2022 to <4x/<3x/>2x in 2023/2024/2025 driven by merger synergies (another $2b/$1b in 2023/2024), revenue growth/normal operating leverage, improving FCF conversion (waning merger costs), less macro disruption (FX + interest rates combined <$550m headwind to AEBITDA in 2022).”

“WBD trades 6x 2024 EV/AEBITDA, 13x 2024 P/AEPS, 9x 2024 P/FCF. We see upside to AEBITDA (lead KPI, in our view) and model 2024 at $12.9b vs consensus $12.4b,” concluded analysts.