WBD - Warner Bros. Discovery: Cash Flow Improvement Should Be Center Stage

2024-05-10 01:22:03 ET

Summary

• Warner Bros. Discovery showed more than $1 billion Free Cash Flow improvement.
• Management had to reconstruct the company structure due to poor prior construction by a previous management.
• The acquisition revealed sloppy corporate construction, with multiple content and financial systems that needed to be replaced by one unified system.
• The market has not been supportive during the time it took to completely understand the challenges of this acquisition and implement an assimilation plan.
• The cash flow issue will begin to decline in importance due to the increase in cash flow as management begins to rebuild the business profitably.

Whenever an investor looks at an acquisition with a lot of leverage and then finds out there was a lot more challenges involved than when management initially reviewed the investment, then cash flow has got to be the priority. Warner Bros Discovery ( WBD ) showed tremendous cash flow improvement. This time around I will follow up my previous cash flow coverage and management pushback on unrealistic expectations after discussing a far more fundamental issue (that was detailed) that came up in this conference call.

The strong buy recommendation appears intact. However, unexpected challenges can delay getting to the point where that strong buy recommendation pays off as expected....

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