AT&T CEO John Stankey thinks the combined Discovery and WarnerMedia will have no problem meeting its aggressive financial goals.
"I think it's very much in reach. We see recovery in media because the pandemic hit them very hard. So you're going to have just some natural cycle. For example, our theatrical business will get much stronger. Our advertising business will get much stronger," Stankey said in an interview on Yahoo Finance Live Monday.
To be sure, shock is still running through the halls of the media universe and Wall Street amid Stankey's latest bout of dealmaking.
AT&T surprised Wall Street last week by saying it will spin off its media division WarnerMedia — which it bought for $85 billion just three years ago — and merge it with Discovery. The move joins household name media brands such as WarnerMedia's HBO and CNN with Discovery's HGTV, Animal Planet, Food Network, and TLC under one house.
The combined company is targeting an annual $52 billion in sales and $14 billion in adjusted EBITDA (earnings before, interest, taxes and depreciation).
Stankey is also bullish on the long-term potential of streaming service HBO Max.
"Let's also not forget one of the things that is very attractive to AT&T shareholders. A direct-to-consumer business that is growing incredibly well — 30% revenue growth in HBO Max and HBO right now. That's only going to grow more rapidly as we launch the product here this month and start our global expansion," explained Stankey.
Wall Street is upbeat on the financial prospects for the soon to be enlarged Discovery once the deal closes in mid-2022 (pending regulatory approval).
"This transaction creates a powerhouse media company offering investors pure play exposure to best-in-class content assets," said Bank of America media analyst Jessica Reif Ehrlich. "We estimate the new Discovery/WarnerMedia entity to be worth approximately $148 billion enterprise value. This attributes a 13.5x multiple to 2030E direct-to-consumer operating income before depreciation and amortization (OIBDA) discounted back and a 7.0x multiple on CY22E legacy OIBDA. When applying Discovery's 29% stake, this equates to an implied Discovery share price range of $39-42/share."
Discovery's current market cap is nearly $16 billion, according to Yahoo Finance Plus data.
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Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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