Warner Bros. Analyst Sees Rebound Ahead: Box Office Gains, DC Relaunch, Spin-Off Plan Could Unlock Hidden Value

Bank of America Securities analyst Jessica Reif Ehrlich maintained a Buy rating on Warner Bros. Discovery WBD with a price target of $16, up from $14 on Tuesday.

Ehrlich anticipated that WBD’s second-quarter earnings would reflect a strong quarter at the box office, offset by industry headwinds in linear. The analyst noted the Studios segment should show significant year-over-year EBITDA growth in the second quarter, driven by a strong quarter at the box office, continued momentum in TV and easier comps.

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WBD relaunches the DC Universe in the third quarter with the release of “Superman.” If successful, Ehrlich noted this could be a critical driver in the Studio’s turnaround and has implications across multiple businesses, including Film, Direct-to-consumer or DTC (via subscriber growth and engagement), consumer products, gaming and experiences.

Ehrlich noted that the linear business remains challenged, with strength in sports advertising but weakness across the board in general entertainment.

However, the analyst says the market is stabilizing as peak tariff uncertainty passes.

Ehrlich expects advertising to face more challenging comparisons in the second quarter as the Final Four aired on CBS Broadcasting (CBS) and not Turner Broadcasting System (TBS) this year.

Ehrlich noted the DTC business should continue to show solid growth in the second quarter and progress toward a calendar 2025 EBITDA of over $1.3 billion.

Overall, Ehrlich’s consolidated expected second-quarter revenue remains $9.56 billion, and expected second-quarter adjusted EBITDA is $1.79 billion.

Recently, WBD announced plans to separate into two publicly traded entities in a tax-free transaction. Ehrlich noted that this is the best way to unlock the significant, unrecognized value inherent in the company.

Ehrlich said the separation into two entities will likely occur in the next nine-12 months.

Related to the transaction, WBD reduced net debt by ~$2 billion by way of a tender offer, the analyst pointed out. Fees and taxes associated with this tender will lower reported free cash flow by ~$1 billion. Ehrlich noted that these one-time items do not reflect weakness in the underlying business.

Ehrlich maintained expected second-quarter revenue of $9.6 billion and adjusted EBITDA of $1.79 billion. By segment, Ehrlich raised expected second-quarter Studios adjusted EBITDA to $651 million (from $625 million), maintained Networks adjusted EBITDA of $1.45 billion and lowered DTC adjusted EBITDA to $292 million (from $318 million).

WBD Price Action: WBD stock is trading lower by 4.88% to $10.90 at publication on Tuesday.

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