It is an uncertain time for investors with ongoing trade wars, higher tariffs, the potential for rising inflation, and an economic slowdown.
Things are up in the air, which is why investors should proceed with caution, looking for opportunities amid the uncertainty. They may find them by looking for cheap stocks with catalysts for growth.
One stock to put on your radar in June is Warner Bros Discovery (NASDAQ:WBD), which is both cheap and has a significant catalyst.
Warner bros discovery to split?
Warner Bros. Discovery has had a brutal time since it merged with Discovery in April of 2022. Over the three years since, it has posted an average annualized return of -18%. There have been a host of problems since the merger, including management upheaval, box office flops, loads of debt, and losses in its linear TV business due to the shift away from cable and the loss of the NBA. The result has been tanking earnings and a plummeting stock price. Presently, the stock is trading at just $10 per share.
So why buy now? There is real speculation of Warner Bros spinning off Discovery, the cable TV business that has been a drain on earnings. Last year, new CEO David Zaslav reorganized the company to put Warner Bros studios, HBO Max, and its streaming properties on one side of the business and cable on the other. This would presumably make it easier to spin off.
The cable properties include CNN, Discovery Channel, TBS, TNT, Turner Classic Movies, Cartoon Network, HGTV, Travel Channel, Food Network, and others.
Then, last month, CNBC first reported that Warner Bros Discovery was moving toward a split, that would likely see Discovery and the cable networks spun off, like Comcast did last year, spinning off its NBC TV channels.
“What Warner Brothers is moving towards, though, is a split, and it’s become relatively clear to me from the many conversations that I’ve had that we could get some sort of an announcement in the not too distant future that they are planning to try to split the company,” CNBC reporter David Faber said on “Squawk on the Street” on May 8.
Would a split make sense? BofA thinks so
On Monday, analysts at Bank of America issued a research note, reiterating their buy rating for Warner Bros. Discovery stock and the $14 per share price target. That would be a 40% increase over the current share price.
“We believe the market value for WBD’s Studio and DTC (direct-to-consumer) assets standalone could far exceed the market cap of the company today,” BofA Securities analyst Jessica Reif Ehrlich said in the note, according to the Hollywood Reporter.
While Warner Bros Discovery has not made any official announcement of a split, CFO Gunnar Wiedenfels did address the question at an investor conference on May 15, after the CNBC news broke.
“There’s a lot more openness to discuss the options, opportunities, and we’re just going to make sure that we are in a position to take advantage of whatever opportunity arises,” Wiedenfels said, reported the Hollywood Reporter.
He was also asked about a timeline for any strategic action the company might take.
“I can’t give a specific timeline, and there is no specific timeline. But we definitely share the view that our current share price is not reflecting the underlying the value of our company,” Wiedenfels said, according to the Hollywood Reporter.
Superman and other blockbusters
So, investors should be aware that this very likely going to happen, its just not clear when. But in the meantime, Warner Bros studios have had a good spring, with two blockbusters, Sinners and A Minecraft Movie. And hopes are high that the new Superman movie, coming out July 11, will be another hit.
Over the past month, the box office success, along with rumors of a split, have raised Warner Bros Discovery’s stock price by 19%. It is now down about 6% YTD.
With net losses over most of the past three years and a tanking share price, the stock is dirt cheap. With a low price-to-sales ratio of 0.64 and a price-to-book value of 0.73, it is in value stock territory.
Investors should be watching this stock for news of the split, which could help unlock its true value.