Paramount Global (NASDAQ: PARA) delivered a mixed bag of news for investors during its earnings report on Wednesday, February 28th. On the positive side, the company’s adjusted earnings outperformed expectations for the fourth quarter, showing a profit of $0.04 per share compared to the anticipated loss of $0.01 per share. However, this was counterbalanced by disappointing revenue figures, as Paramount fell short by about $200 million, reporting only $7.6 billion in revenue for the quarter.
Despite the revenue miss, investors initially responded positively to the earnings beat, with Paramount’s stock edging higher in after-hours trading following the report. However, this optimism may be short-lived, as just prior to the earnings release, Morgan Stanley analyst Benjamin Swinburne reiterated a sell rating on Paramount’s stock.
This mixed reaction reflects the uncertainties surrounding Paramount’s performance and future prospects. While the company showed strength in earnings, concerns remain about its ability to drive revenue growth and meet market expectations in the long term. Investors will likely be closely monitoring Paramount’s strategic moves and financial performance in the coming quarters to gauge its trajectory in the highly competitive media and entertainment industry.
Is Paramount stock a sell?
Swinburne’s assessment of Paramount Global’s (NASDAQ: PARA) stock is rather bleak, predicting it will “underperform” the broader market and end 2024 with a share price around $10, representing a roughly 10% decline from its current level. His analysis points to several challenges facing the company, particularly in its CBS television network segment, which is expected to experience weak revenues from broadcasting and cable in 2024 and beyond. There is also uncertainty surrounding Paramount’s ability to offset these revenue declines with growth in streaming TV subscriptions.
Additionally, Paramount is burdened by a heavy debt load, with $15.2 billion more debt than cash on its balance sheet, which is approximately twice the stock’s market capitalization. This high level of debt adds further strain to the company’s financial position and limits its flexibility in pursuing strategic initiatives.
However, there are some signs of improvement. Swinburne noted that Paramount had previously struggled to generate meaningful free cash flow, consistently burning through cash in 2022 and most of 2023. However, the latest earnings report suggests a positive turnaround, with Paramount generating positive free cash flow of $148 million by the end of 2023. This improvement in cash flow could be a positive development for the company, potentially alleviating some concerns about its financial performance and liquidity.
Indeed, while Paramount’s stock may still appear relatively expensive at 52 times trailing free cash flow, the fact that the company is now generating positive cash profit is a significant improvement. The ability to generate real cash profit is a crucial factor in evaluating a company’s financial health and sustainability.
If Paramount can maintain its positive free cash flow trajectory and demonstrate continued improvement in its financial performance, it could help justify its current valuation and potentially even support future stock price appreciation. However, investors should remain cautious and closely monitor Paramount’s progress in managing its debt, navigating challenges in its broadcasting and cable segments, and executing its strategy to capitalize on streaming TV opportunities.