Is Paramount Global Stock a Buy on the Buyout Buzz?

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When Paramount Global (NASDAQ:PARA) stock dropped to $10.51 in October, it felt as if the bleeding would never cease. However, the market now appears to favor Paramount Global, although some of the comeback chatter may be based on rumors and speculation.

There may be a turnaround story in the works, but it takes guts to bet on a beaten-down stock like PARA. Yet, if you have the fortitude and are buying for the right reasons, there may be a prime investment opportunity with Paramount Global.

The storm before the calm

While the “Magnificent Seven” technology giants seemingly could do no wrong this year, Paramount Global just couldn’t catch a break. The actors’ strike made it more difficult to source new streaming content, inflation forced families to prioritize necessities over entertainment, and Paramount Global faced fierce competition from the likes of Walt Disney (NYSE:DIS), Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX).

The actors’ strike ended in November, so PARA stockholders may have felt some relief. However, November was also the month when Paramount Global announced offerings of up to nearly $541 million worth of debt. That’s one way for the company to get a quick capital infusion, but that debt load will have to be repaid with interest.

Adding to the angst, Paramount Global reported a direct-to-consumer (DTC) segment net loss of $238 million in the third quarter.

CEO Bob Bakish attempted to reassure investors, saying, “We now expect DTC (direct-to-consumer) losses in 2023 will be lower than in 2022,” but that’s not much to brag about.

Adding insult to injury, Bank of America (NYSE:BAC) Securities analyst Jessica Reif Ehrlich double-downgraded PARA stock from Buy to Underperform. Ehrlich also drastically reduced her price target on the stock from $32 to $9. Evidently, Bank of America was bothered by Paramount Global’s reluctance to sell assets like Showtime and BET Media Group.

“Our concern is the longer it takes to execute potential asset sales, the less value they could ultimately garner,” Ehrlich warned.

Meanwhile, Needham analysts expressed doubt that Paramount Global could succeed in the ultra-competitive streaming market.

“At an [sic] $7 billion market cap plus about $14 billion of net debt, we believe PARA is too small to win the streaming wars,” they opined.

At the same time, the Needham analysts considered a solution. A larger, more successful company could buy out Paramount Global.

“It is bite-size enough to be acquired by a larger streaming competitor for its deep library of film and TV content, as well as its sports rights and news assets,” the Needham analysts suggested.

Speculation and jubilation

Fast-forward to late November, and the speculations about a potential buyout of Paramount Global have spread rapidly. Fueling them was a filing with the Securities and Exchange Commission (SEC) disclosing big cash payouts for certain Paramount Global executives if the company is sold or merges with another company.

You know the old saying: “Buy the rumor; sell the news.” Apparently, PARA stock was in the buy-the-rumor phase, as it jumped on chatter that the company could be bought out very soon. 

Moreover, Bakish provided fodder for the rumor mongers during Paramount Global’s third-quarter earnings call when he teased, “When it comes to M&A [mergers and acquisitions], we’re always open-minded, and we look at potential opportunities through the lens of really how we can maximize shareholder value.”

Then in early December, The Wall Street Journal reported that Apple and Paramount Global were in talks to bundle the two companies’ streaming offerings. Naturally, this fueled rumors that Apple could acquire the company any day now.

This takes us to Dec. 8, when PARA stock jumped 11% on a report that, according to Yahoo! Finance, “RedBird Capital, along with Skydance Media CEO David Ellison, were looking to acquire National Amusements’ voting shares and take control of” Paramount Global. 

There are a number of issues to consider here. First, the original source of the report was Deadline, and prospective investors should take the credibility of all sources into account. Second, there’s currently no confirmation from Paramount Global that any entities will take control of it.

Furthermore, even if one or more entities take control of Paramount Global through voting-share ownership, it won’t necessarily culminate in a buyout. Nonetheless, as long as PARA stock remains in the buy-the-rumor phase, it’s entirely possible that the share price could continue to rocket higher.

Just bear in mind that the second part of the saying is, “Sell the news.” Anything less than a full-on acquisition of Paramount Global could result in a drastic share-price decline. Thus, before jumping into a hasty trade based on hope and rumors, consider your risk tolerance, and for safety’s sake, limit your position size with PARA stock. 

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.