Warner Bros. Discovery is the best value stock in the media and entertainment sector, according to Bank of America. The firm reiterated its buy rating and $21 price target on the stock in a Wednesday note. That implies that Warner Bros. Discovery could nearly double from where it closed Tuesday. The bullish rating comes as Warner Bros. Discovery has made a tremendous amount of operational and strategic changes since April, wrote analyst Jessica Reif Ehrlich. Warner Bros. Discovery was put together in April when AT & T merged WarnerMedia with Discovery and spun it out to AT & T shareholders. Now Reif Ehrlich sees the company delivering on its goal of $2 billion or more in incremental synergy savings in 2023, with a longer-term cumulative target of more than $3.5 billion. “In our view, there is a lot of low hanging fruit in almost every division where they can be more efficient (structure and costs) and monetize better (advertising and subscriber fees) by offering consumers a better product,” she wrote. “In the near term, we believe the company’s top priorities are to get their creative team in place (essentially in place), execute on the launch of their new streaming platform (expected in 2Q23) and shortly after launch a FAST service, given their uniquely large and under-monetized library.” Key content She sees film as the area of greatest potential for Warner Bros. Discovery, especially if it can maximize the popular DC universe. “While WBD is operating in a significantly different environment, both secularly and cyclically, than when the merger was announced in May 2021, its growth drivers are very much in place,” she said. In the next six months, a top priority for WBD will be to relaunch its new combined streaming service, which will also be an opportunity to reprice its product in several markets. “The focus will be to provide a vastly improved user interface, recommendation engine and content mix that appeals to all four quadrants,” said Reif Ehrlich. “To the extent that the company can deliver on these attributes with a technically better app, it should drive churn down and engagement up.” Sports is also a key part of the Warner Bros. Discovery portfolio, which includes March Madness, NHL, MLB playoffs and the NBA. “The newly emerged WBD is (finally) beginning to maximize the value of their sports content by putting Sports and News along with entertainment content under one unified advertising salesforce,” said Reif Ehrlich. “This is the first time the company has operated in a structurally complete manner.” In addition, NBA media rights come up after the 2024-2025 season and represent a significant increase in potential deals that are critical to profitability. “We believe both incumbents — ESPN and Turner — greatly value the NBA but are unlikely to pay the magnitude of increases that are being speculated in the press,” wrote Reif Ehrlich. “At this point, the most likely outcome may be that the NBA is split up into multiple packages, including linear and streaming, while introducing a large platform (e.g. AAPL/AMZN), which would serve to maximize reach across global distribution platforms.” Underperformance this year So far this year, WBD has lost almost 60% of its value amid a broad selloff in technology and media companies. Reif Ehrlich also attributes the stock slump to high leverage at the end of the third quarter, which she says will come down and allow WBD to begin buying back stock over the next few years. She also sees the scope of the company’s non-strategic assets, including cable networks, content libraries, real estate and games, as undervalued and providing valuable equity to shareholders. “We are bullish on the long-term potential of WBD and view the current risk/reward as highly attractive,” she said.