BUSINESS
Paramount Global operates as a media and entertainment company worldwide. The company operates through TV Media, Direct-to-Consumer, and Filmed Entertainment segments. The TV Media segment operates domestic and international broadcast networks, including CBS Television Network, Network 10, Channel 5, Telefe, and Chilevision; and cable networks comprising Showtime, BET, Nickelodeon, MTV, Comedy Central, Paramount Network, Smithsonian Channel, and CBS Sports Network. It is also involved in the television production operations; and ownership of broadcast television stations. The Direct-to-Consumer segment provides a portfolio of direct-to-consumer streaming services, including Paramount+, Pluto TV, Showtime Networks’ premium subscription streaming service, BET+, and Noggin.
INVESTMENT RATING
PARA’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
Paramount Global has a current Value Trend Rating of C (High Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Paramount Global has a very high Appreciation Score of 96 but a poor Power Rating of 26, leading to the High Neutral Value Trend Rating.
Paramount Global’s stock is selling well below targeted value. The current stock price of $11.45 compares to targeted value 12 months forward of $80.
Paramount Global’s very high appreciation potential results in an appreciation score of 96 (only 4% of the universe has greater appreciation potential.)
Paramount Global has a Power Rating of 26. (PARA’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 26% of companies in the universe.)
Factors contributing to this poor Power Rating include: the Diversified Multi-Media comparison group is currently in an unfavorable position; and recent price action has been unfavorable. An offsetting factor is earnings estimate behavior for PARA has been slightly favorable recently.
INVESTMENT PROFILE
PARA’s financial strength is average. Financial strength rating is 42.
Relative to the S&P 500 Composite, Paramount Global has significant Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that PARA is higher risk. All factors are relative weaknesses. Relative weaknesses for PARA include: low forecasted profitability, low financial strength, high stock price volatility, and low expected growth. PARA’s valuation is low: moderate dividend yield, low P/E ratio, and low price/book ratio. PARA has unusually low market capitalization.
CURRENT SIGNALS
Paramount Global’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
Paramount Global’s current technical position is very weak. The stock price is in a 3.0 month down move. The stock has declined 26.0% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Recent small positive changes in fundamentals have benefitted Paramount Global (NASDAQ: PARA): significant quarterly earnings acceleration occurred.
The stock is currently rated C.
On 3/25/24, Paramount Global (NASDAQ: PARA) stock increased 1.8%, closing at $11.45. However, this advance was accompanied by unusually low trading volume at 52% of normal. Relative to the market the stock has been weak over the last nine months but has risen 2.1% during the last week.
CASH FLOW
In 2023, Paramount Global experienced a significant decline in cash of -$425 million (-15%). Sources of cash were lower than uses. Cash generated from 2023 EBITDA totaled +$2,390 million. Non-operating uses consumed -$2,697 million (-113% of EBITDA). Cash taxes consumed -$213 million (-9% of EBITDA). Withdrawal of investment from the business totaled +$1,691 million (+71% of EBITDA). On a net basis, debt investors received -$2,370 million (-99% of EBITDA) while equity investors supplied +$774 million (+32% of EBITDA).
Paramount Global’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Paramount Global Peer Group. (Since 2021 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, Paramount Global was in the lower quartile and third quartile. Currently, Paramount Global is lower quartile at -113% of EBITDA (-$2,697 million).
Paramount Global’s Cash Taxes, %EBITDA enjoyed a strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Paramount Global Peer Group. In most years, Paramount Global was in the top quartile and second quartile. Currently, Paramount Global is at the upper quartile at -9% of EBITDA (-$213 million).
Paramount Global’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Paramount Global Peer Group. In most years, Paramount Global was in the top quartile and lower quartile. Currently, Paramount Global is upper quartile at +71% of EBITDA (+$1,691 million).
Paramount Global’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Paramount Global Peer Group. (Since 2019 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Paramount Global was in the second quartile and lower quartile. Currently, Paramount Global is lower quartile at -99% of EBITDA (-$2,370 million).
Paramount Global’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Paramount Global Peer Group. In most years, Paramount Global was in the top quartile and lower quartile. Currently, Paramount Global is upper quartile at +32% of EBITDA (+$774 million).
Paramount Global’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Paramount Global Peer Group. In most years, Paramount Global was in the second quartile and top quartile. Currently, Paramount Global is lower quartile at -18% of EBITDA (-$425 million).
Paramount Global’s Cash, %Revenue has exhibited a very small overall uptrend over the period. This improvement was accompanied by stability for the Paramount Global Peer Group. (Since 2021 Cash, %Revenue has experienced a very sharp decline.) In most years, Paramount Global was in the third quartile and second quartile. Currently, Paramount Global is at median at +8%.
PROFITABILITY
Paramount Global’s return on equity has eroded very significantly since 2014. The current level is -5.7% versus the high of 19.4% and the low of -6.0%.
A major analytical focus for PARA is a very strong negative trend in pretax operating return significantly augmented by a very strong negative trend in non-operating factors.
The productivity of Paramount Global’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Paramount Global’s return on equity is substantially below median (-5.7%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (-3.0%) reflecting asset turnover that is at the lower quartile (0.55X) and lower quartile pretax margin (-5.4%).
Tax “keep” rate (income tax management) is at median (79.6%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at median (2.38X).
GROWTH RATES
Overall, Paramount Global’s growth rate has slowed very considerably in recent years.
Paramount Global’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 5.5% per year. (More recently it has been 1.2%.)
Total asset growth has been 6.9% per year. (More recently it has been 0.0%.)
Annual E.P.S. growth has been -6.5% per year.
Equity growth has been 17.3% per year. (More recently it has been 30.5%.)
Paramount Global’s consensus growth rate forecast (average of Wall Street analysts) is 4.2% — in line with the average of the historical growth measures.
Relative to the Paramount Global Peer Group, Paramount Global’s historical growth measures are erratic. Equity growth (17.3%) has been above median. Revenue growth (5.5%) has been substantially below median. Total asset growth (6.9%) has been at the lower quartile. E.P.S. growth (-6.5%) has been lower quartile.
Consensus growth forecast (4.2%) is lower quartile.
PRICE HISTORY
Over the full time period, Paramount Global’s stock price performance has been variable and significantly below market. Between May, 2013 and March, 2024, Paramount Global’s stock price fell -77%; relative to the market, this was a -93% loss. Significant price moves during the period: 1) April, 2023 – October, 2023: -53%; 2) March, 2022 – December, 2022: -55%; 3) February, 2021 – December, 2021: -53%; 4) March, 2020 – February, 2021: +360%; and 5) March, 2017 – March, 2020: -80%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -47.4% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -47.4% is lower quartile relative to Paramount Global Peer Group.
Current 5-year total return performance of -23.9% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -23.9% relative to S&P 500 Composite, Paramount Global’s total return performance is lower quartile relative to Paramount Global Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, PARA’s overall valuation is exceptionally low. The highest factor is the ratio of enterprise value/earnings before interest and taxes, followed by the ratio of enterprise value/assets, then by the ratio of enterprise value/revenue, then by the price/equity ratio. Price/earnings ratio is unavailable.
Relative to Paramount Global Peer Group, PARA’s overall valuation is exceptionally low. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. Ratio of enterprise value/revenue is lower quartile. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable.
Paramount Global has a major value gap compared to the median. For PARA to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.78X to 2.36X. If PARA’s ratio of enterprise value/revenue were to rise to 2.36X, its stock price would be higher by $76 to $88.
For PARA to achieve upper quartile valuation relative to the Paramount Global Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.78X to 5.02X. If PARA’s ratio of enterprise value/revenue were to rise to 5.02X, its stock price would increase by $205 from the current level of $11.
VALUE TARGETS
PARA’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
Paramount Global’s current Price Target of $72 represents a +533% change from the current price of $11.45.
This very high appreciation potential results in an appreciation score of 96 (only 4% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 96, the low Power Rating of 26 results in an Value Trend Rating of C.
Paramount Global’s current Price Target is $72 (-31% from the 2023 Target of $105 but +533% from the 03/25/24 price of $11.45). This dramatic fall in the Target is the result of a -15% decrease in the equity base and a -18% decrease in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted decline in cost of equity has a slight positive impact as well. More than offsetting these Drivers, the forecasted decline in growth has a very large negative impact.
PTR’s return on equity forecast is 4.8% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2015 and 2023. The current forecast is significantly below the 2017 peak of 74%.
PTR’s growth forecast is 0.0% — below our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2019 and 2023. The current forecast is significantly below the 2021 peak of 20%.
PTR’s cost of equity forecast is 1.9% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, variable decline between 2015 and 2023. The current forecast is significantly below the 2018 peak of 13.0%.
At Paramount Global’s current price of $11.45, investors are placing a negative value of $-8 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 4.0% versus a cost of equity of 2.0%.
PTR’s 2025 Price Target of $72 is based on these forecasts and reflects an estimated value of existing assets of $23 and a value of future investments of $49.
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