BofA Securities initiated coverage of Paramount Skydance with an 'Underperform' rating, projecting a lengthy and challenging turnaround for the newly merged media entity, citing substantial investment needs and operational hurdles.

Opening

BofA Securities has initiated coverage on Paramount Skydance (NYSE:PSKY) with an 'Underperform' rating, signaling a cautious outlook on the newly formed media company's prospects. This assessment underscores concerns about the significant time and investment required for its strategic turnaround.

The Event in Detail

Analyst Jessica Reif Ehrlich of BofA Securities assigned a price target of $11.00 for Paramount Skydance, a valuation based on approximately 7.5x CY26E EBITDA. The stock is currently trading at $14.74. The analyst's report acknowledges the potential for Paramount Skydance to evolve into a "dynamic global media company" but firmly cautions that there are "no easy fixes." The merger between Skydance Media and Paramount Global was finalized on August 7, 2025.

Analysis of Market Reaction

The 'Underperform' rating reflects BofA Securities' view that the company's turnaround will be protracted, necessitating "substantial investment and investor patience." The firm highlighted that Paramount Global had been "starved of capital investment for years" under prior leadership, contributing to current operational challenges. BofA Securities also noted that similar large-scale media restructuring efforts, like the Warner Bros and Discovery combination, have historically taken years to implement. A significant factor weighing on future earnings is the $750 million UFC rights deal, considered a substantial expense that will impact near-to-medium-term profitability. Furthermore, BofA Securities forecasts a pro-forma EBITDA of $3.06 billion for 2026, considerably lower than management's expectation of $4.1 billion at the time of the merger announcement. The firm also suggests the stock is currently trading at a "rich multiple" given the limited visibility into future operations.

Broader Context & Implications

The newly formed Paramount Skydance carries $14.6 billion in debt, though the merger deal was backed by a $6.0 billion private investment from the Ellison family and RedBird Capital. Despite this capital injection, the company plans a major round of layoffs in November as part of a $2 billion cost-cutting initiative, reflecting the challenging financial landscape. The notably low Price/Book multiple of 0.44x indicated by InvestingPro data suggests the market might already be pricing in some of the difficulties, yet BofA Securities' rating implies further downside or prolonged stagnation. For context, Benchmark had previously adjusted its price target for Paramount Global to $16.00 (from $19.00) while maintaining a Buy rating, citing challenges like weaker advertising revenue and slower subscriber growth. UBS maintained a Sell rating with an $11.00 price target. This mixed analyst sentiment underscores the complexity of valuing the company during this transitional period.

Expert Commentary

BofA Securities analyst Jessica Reif Ehrlich cautions that for Paramount Skydance, "there are no easy fixes" and a turnaround will necessitate "substantial investment and investor patience," requiring a significant amount of time to implement.

Looking Ahead

Investors will be closely watching Paramount Skydance's third-quarter earnings report in November for more strategic and financial details. The effectiveness of the planned $2 billion cost-cutting initiatives, including significant workforce reductions, will be crucial in assessing the company's path to improved financial health. The long-term success hinges on the company's ability to integrate its assets, manage its debt, and effectively navigate the shift from traditional media to streaming, a process BofA Securities anticipates will "take years to implement."