What happened
Shares of Warner Bros. Discovery (NASDAQ: WBD) rose on Wednesday following bullish analyst remarks. By the close of trading, the media company's stock price was up 5.3% after rising as much as 11.4% earlier in the day.
So what
Telecom titan AT&T (NYSE: T) recently spun off its WarnerMedia assets and merged them with television conglomerate Discovery. Investors had their first chance to buy the combined company's shares on Monday.
On Wednesday, Bank of America analyst Jessica Reif Ehrlich placed a buy on Warner Bros. Discovery's stock. She sees its share price soaring 73% to $45 in the coming year.
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With its valuable collection of cable and streaming properties, Reif Ehrlich thinks the new company will quickly become a powerhouse in the global media industry. Its assets include popular TV networks HGTV, CNN, and Food Network, as well as fast-growing streaming services HBO Max and Discovery+.
Moreover, Reif Ehrlich expects Warner Bros. Discovery to easily achieve management's goal of $3 billion in cost savings following the merger. In turn, she believes the company can grow its earnings before interest, taxes, depreciation, and amortization (EBITDA) by more than 14% annually through 2025.
Now what
Despite its promising long-term prospects, investors should expect some short-term selling pressure on Warner Bros. Discovery's stock. Reif Ehrlich cautioned that many former AT&T shareholders, who tend to be income-focused, may decide to sell the shares they received as part of the merger. Unlike AT&T, Warner Bros. Discovery does not pay a dividend.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Discovery (C shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
