Paramount stock no longer deserves a premium multiple: Wells Fargo

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Paramount Global (NASDAQ: PARA) has been in a downturn over the past seven months but a Wells Fargo analyst warns the pain is not over just yet.

Paramount stock could crash to $13

On Monday, Steven Cahall downgraded the media an entertainment conglomerate to “underweight”.

His new price objective of $13 a share represents another 30% downside from here. Explaining his dovish view in a note to clients, the analyst wrote:

We can no longer justify Paramount Global’s premium multiple amid our more negative view on linear trends and an uncertain direct-to-consumer (DTC) outlook.

Paramount stock is currently trading at 8.5 times his EBITDA estimate for 2023 versus 7 times and lower for rivals – and it only gets more expensive when valued in terms of price to free cash flow, Cahall added.

Paramount to report Q3 results this week

Paramount is set to report its Q3 financial results on November 2nd. Consensus is for it to earn 43 cents a share. That’s close to a 45% decline on a year-over-year basis. Cahall further said:

Paramount’s content is undoubtedly valuable but self-distributing via direct-to-consumer that may not scale devalues it since it doesn’t monetise as effectively. We struggle to value DTC without a clear path to solid profitability.

An advertising slowdown on fears of a recession in 2023 is among other headwinds for the Nasdaq-listed firm. Paramount stock is already down more than 50% versus its year-to-date high.

On the plus side, though, it’s a dividend stock with a yield of about 5.25%.

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