Paramount cut to Neutral at Citi

Citi downgraded Paramount Global from Buy to Neutral, reducing its price target to $12 from $13, citing a balanced risk-reward profile despite anticipating the Skydance Media transaction closing in 2025. The firm expects increased volatility due to the transaction's structure and a potential $7 per share cash payment. Post-merger, Citi suggests Paramount could benefit from a strategic pivot, including potential asset sales such as linear cable assets to Comcast's Versant, broadcasting assets, or Paramount+ for a stake in a larger DTC business, though these are not yet factored into their valuation.

Analysis

Citi has adjusted its stance on Paramount Global (PARA), downgrading the stock from Buy to Neutral and reducing its price target from $13 to $12, reflecting a valuation of 6.4x 2026 EV/EBITDA. This revised outlook is attributed to a more balanced risk-reward profile at the current stock price, despite continued expectations that the Skydance Media transaction will close in 2025. Citi anticipates heightened equity volatility for Paramount, stemming from the transaction's structure, particularly the significant ~$7 per share cash payment election, which is expected to influence the positioning of event-driven funds post-close. Beyond the immediate transaction, Citi identifies potential long-term value drivers from strategic shifts under new management. These could include the divestiture of linear cable assets, potentially to Comcast's (CMCSA) new entity Versant, the sale of broadcasting assets contingent on relaxed ownership restrictions, or exchanging Paramount+ for a stake in a larger direct-to-consumer (DTC) business to better compete with entities like Netflix (NFLX) through market consolidation. However, Citi stresses that these potential asset sales are speculative at this stage and are not yet incorporated into their valuation models, as the Skydance deal has not yet concluded.

Key Decisions for Investors

• Investors should acknowledge the more balanced risk-reward profile for Paramount Global at current levels, as indicated by Citi's downgrade and lowered price target.
• Prepare for increased volatility in Paramount's stock due to the impending Skydance Media transaction, especially concerning the cash payment election and subsequent positioning by event-driven funds.
• Monitor potential post-merger strategic developments, such as asset sales (linear cable, broadcasting, Paramount+), which are not currently priced in but could significantly impact future valuation and the company's operational focus, though these remain contingent on the Skydance deal closing and new management decisions.