Bank of America continues to see significant upside potential in the ongoing strategic considerations surrounding Warner Bros. Discovery’s (WBD) structure, particularly regarding a potential separation of its assets. Their securities research team believes that the standalone market value for WBD’s Studio and Direct-to-Consumer (DTC) assets could substantially exceed the company’s current market capitalization, highlighting a compelling opportunity for outsized investor returns. Analyst Jessica Reif Ehrlich emphasized this view in a June 2 investor note, stating that a strategic spinoff of WBD’s linear TV assets represents a crucial step in unlocking previously unrealized shareholder value. The possibility of a breakup, long considered by Wall Street analysts since the 2022 merger, centers on a scenario where Warner Bros. studios would be paired with Max, while the Discovery linear cable channels would be carved off and operated independently – a model closely resembling NBCUniversal’s approach with Versant. This strategic move acknowledges the shifting media landscape, where consumers are increasingly prioritizing individual streaming subscriptions over traditional cable bundles, leading to a decline in the value of linear TV assets. Historically, these cable channels were a significant cash driver for studios, but now they represent a drag on earnings, a factor investors have increasingly scrutinized. The shift reflects a broader industry trend as companies like NBCUniversal are spinning off most of their cable assets—minus Bravo—and including CNBC, into a new company called Versant, demonstrating a proactive approach to maximizing asset value. This strategic realignment isn’t solely theoretical; Warner Bros. Discovery has already begun reorganizing the company with a clear eye toward a potential spinoff of its legacy TV assets. In December 2024, the studio announced a global linear TV division, separate from its streaming and studios divisions, and initiated early steps toward this reorganization, with a projected completion date of mid-2025. This restructuring is designed to ‘enhance strategic flexibility and create potential opportunities to unlock shareholder value’, recognizing the company’s operation in two distinct divisions. The move underscores WBD’s commitment to adapting to the evolving media environment and capitalizing on potential value creation. Notably, the company’s recent downgrade to BB+ by S&P Global over linear TV weakness, particularly concerning 2025 and 2026, is viewed positively by BofA Securities. Analyst Jessica Reif Ehrlich argued that this downgrade could contribute to WBD’s balance sheet flexibility, a counterintuitive perspective that highlights the strategic thinking surrounding the company’s future.
CFO Gunnar Wiedenfels, during an investor conference appearance on May 15th, refrained from providing a specific timeline for any ‘strategic action’ aimed at revealing the underlying value of studio assets, stating, ‘I can’t give a specific timeline, and there is no specific timeline.’ However, Wiedenfels did express the company’s belief that the current share price doesn’t accurately reflect the company’s true value.
BofA Securities maintains a buy rating and a price target of $14.00 for shares in WBD, reflecting confidence in the company’s strategic direction. As of early afternoon trading on Monday, WBD’s stock was trading up 5 cents at $9.98, indicating continued investor interest in the company’s potential.
