Paramount Skydance (PSKY) stock is under pressure on July 9 after Arete Research analyst Pierre-Marie d’Ornano downgraded the mass media company to “Sell.”
D’Ornano lowered his price target on PSKY as well to a Street-low of just $2.00, suggesting an alarming 80% potential downside from its previous close.
His bearish call arrives amid significant investor skepticism that’s already driven Paramount shares down about 30% year-to-date.
Why Did Arete Research Turn Bearish on PSKY Stock?
The center pillar of Arete’s bearish view on PSKY shares is the company’s pending acquisition of Warner Bros. Discovery (WBD).
According to d’Ornano, the mega-merger is projected to saddle the combined entertainment giant with an immense $86 billion in gross debt, pushing corporate leverage to an alarming 6x earnings.
And it remains unclear whether management has the “experience to run a highly levered balance sheet, which typically requires a different mindset,” he told clients.
Note that Barchart data agrees with Arete’s bearish stance on Paramount Skydance, with a “100% SELL” rating, indicating technical momentum is also currently against the media stock.
What Else Could Weigh on Paramount Skydance Shares?
In his research note, d’Ornano also argued that the current interest rates environment means PSKY faces more expensive debt and restrictive maintenance covenants “than was the case for its WBD predecessor.”
This would meaningfully limit the firm’s short-term financial flexibility and cash flow strength, he added.
Plus, large media mergers often fail due to broader challenges like “linear declines, lofty streaming expectations and hard to manage capital structures,” the analyst added.
In short, with profit margin squeezed, Arete Research warned that execution missteps in integrating WBD could significantly erode value for shareholders over time.
That said, Paramount shares remain attractive for income-focused investors given it currently pays a healthy dividend yield of 2.17%.
What’s the Consensus Rating on Paramount Skydance?
Investors should also note that other Wall Street analysts aren’t particularly bullish on Paramount Skydance either.
According to Barchart, the consensus rating on PSKY stock sits at “Hold” only, but the mean price target of $12.50 suggests potential upside of nearly 40% over the next 12 months.
