Analysts at Jefferies remain positive on Netflix Inc (NASDAQ:NFLX, XETRA:NFC) amid reports of growing likelihood for a Warner Bros Discovery Inc (NASDAQ:WBD, XETRA:J5A) acquisition.
The optimism comes as WBD’s board reportedly plans to ask shareholders to reject a $30-per-share takeover bid from Paramount Skydance (PSKY). Paramount had gone hostile last week, urging investors to reject the deal with Netflix.
“While continued headline noise could impact NFLX stock in the near-term, we remain positive over the next 12 months as we don’t expect a prolonged bidding war, organic growth should remain healthy, and NFLX-WBD synergies are underappreciated,” Jefferies wrote in a note to clients.
Jefferies said Netflix is unlikely to aggressively chase Warner Bros into an escalating auction. “We think NFLX can match a ~10% increase in purchase price while staying EPS-accretive in year-2, but we’re skeptical NFLX would chase WBD into an escalating auction,” they wrote.
The analysts highlighted potential strategic benefits, including cross-selling HBO content to Netflix subscribers, which they estimate could add roughly 2% to combined streaming revenues.
“WBD’s IP should also become even more valuable under Netflix’s distribution engine,” Jefferies wrote
Valuation appears attractive, with the acquisition multiple below 25 times 2027 estimated EPS versus a three-year average of 31 times, according to the analysts.
The analysts see a Netflix-Warner Bros combination as strategically and financially compelling, particularly as the threat of a drawn-out bidding war appears to be easing.
The firm maintained a ‘Buy’ rating on Netflix, with a $134 price target, implying about 42% upside from its current $95 share price.
Warner Bros shares traded at about $28, down 1.6% on Wednesday.