Wells Fargo media analyst Steven Cahall not only gave ViacomCBS a downgrade, which led to a further pummeling of that company’s stock, but presented Discovery Inc. with some bad news of its own.
Cahall’s downgrade of Discovery wasn’t a sucker punch, as he put the company in a better light than ViacomCBS. Still, investors immediately responded by selling off their shares.
The result: A 27.5% day-over-day decrease in value for DISCA resulting in value investors buying in early after-hours trading on Friday.
On ten times the normal trading volume of 10.2 million shares, DISCA finished the day at $41.90, a $15.85 dip. But, a 10 cent gain was seen as of 4:16pm Eastern.
One week ago, Discovery shares finished at $77.27, completing an impressive rise that began following the 2020 U.S. presidential election.
While the rise isn’t as abrupt as that seen by ViacomCBS, it did suggest that streaming revenue projections against linear network long-term growth deserved a closer look. That’s what Cahall did, and he had a better assessment for Discovery as his did for the company controlled, ultimately, by Shari Redstone.
Cahall downgraded Discovery to “equal weight” from “overweight.” Its price target was trimmed, to $59 from $65.
That’s peanuts compared to his ribbing of ViacomCBS.
And, as The Street first reported, Cahall is still high on “the prospects for Discovery+ after a strong start to the year [along with] pending international expansion with the Olympics.” He added that Wells Fargo likes the fact that Discovery+ is “a primarily incremental strategy and value it a premium on subs to peers.”
Also a long-term positive for Discovery, in Cahall’s view, is that the company “has less core risk due to no licensing, set affiliate price increases, more international exposure and a bit more recovery momentum due to relative ad exposure.”
But, Cahall’s call followed a downgrade to “sell” by UBS, thus triggering the dip seen Friday (3/26) to end Q1 2021 with a thud.
