Bear of the Day: Paramount Global (PARA)
Company Overview
Zacks Rank #5 (Strong Sell) stock Paramount Global (PARA), formerly ViacomCBS, is a multinational media and entertainment conglomerate with a diverse portfolio of brands and assets. However, the company is mainly focused on creating, distributing, and monetizing content across different platforms, including television, film, digital streaming, and live events. Paramount Global owns and operates well-known entertainment brands such as Paramount Pictures, Paramount+ streaming service, MTV, CBS, Nickelodeon, Showtime, and others. The company also produces a wide range of content, including movies, TV shows, news programs, and digital content, catering to a global audience.
Ballooning Debt
Friday, Moody’s, a global financial services company specializing in credit ratings, research, and risk analysis, cut Paramount Global’s debt rating from Baa2 to Baa3, one step above “noninvestment” grade. Paramount currently has more than $15 billion in long-term debt.
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Because of the company’s outsized long-term debt, it has been forced to make cuts elsewhere. Recently, Paramount agreed to sell its Simon & Schuster book division and was forced to slash its quarterly dividend by nearly 80% to raise cash.
A Rapidly Changing Industry
Paramount’s business is being hurt by changing consumer preferences. Consumers are increasingly “cord-cutting” more than ever due to the many advantages over traditional cable such as cost savings, content variety and personalization, ad-free viewing and commitment free subscriptions. Though Paramount has a streaming service of its own, it faces stiff competition from strong existing streaming companies such as Netflix (NFLX), Amazon (AMZN) Prime, Apple (AAPL) TV, Disney (DIS) +, and many more. Global advertising is also adversely impacting Paramount. Year-over-year advertising revenues dropped 5.9% amid a weak global advertising market and fewer NFL games aired. As a result, annual EPS has moved in the wrong direction for investors and has declined for five consecutive years.
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Relative Weakness
PARA’s price and volume action is mirroring its weakening fundamental picture. In the past five years, PARA stock is down 74.2%, drastically underperforming the S&P 500 Index’s gain of 58.6% over the same period. How weak has PARA been? The stock is now knocking on the door of the 2020 COVID-19 pandemic crash lows.
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Bottom Line
The recent Moody’s downgrade of Paramount Global’s debt rating underscores the risk inherent in the stock. The company’s long-term debt exceeds $15 billion, its quarterly dividend is shrinking, and fierce competition from streaming giants will likely cap new growth opportunities.
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