Synergies Will Take Longer! Citi Raises Skydance (SKYD.US) Synergy Costs to $4 Billion but Maintains "Buy" Rating
Citibank has released a Q3 2026 model update report for Skydance Corp, maintaining its "Buy" rating and a target price of $10.
According to news from Zhihui Finance APP, Citi has released a Q3 2026 model update report for Skydance Corp(SKYD.US). The analyst team led by Jason Bazinet stated in the report that, based on the company’s latest guidance, the total cost to achieve synergies has been raised from $3.2 billion to $4 billion, and it is expected that the realization time for synergies will be extended. Meanwhile, management’s comments on weak Warner Bros. business prompted Citi to lower its revenue forecast for the Studio segment. However, the report believes that the underlying business of the company will not undergo structural changes, therefore maintaining a “Buy” rating and a target price of $10, corresponding to approximately 8 times the expected 2028 enterprise value/EBITDA.
The report notes that Skydance achieved revenue of $7 billion in the third quarter of 2026, basically in line with the FactSet consensus of $7 billion; adjusted EBITDA was $1 billion, about 10% higher than the consensus forecast of $913 million. The report points out that Paramount assets still have the potential to reach the high end of the 2026 adjusted EBITDA target of $3.9 billion.
Management confirmed that it expects to reach 30% of the targeted run-rate synergy by the end of 2027 and 70% by the end of 2028. Transformation costs are estimated at $4 billion, with 2027 spending expected to range from $1.5 billion to $2 billion. Management also mentioned that the integration of Pluto and BET+ into Paramount+ is making progress; in addition, Paramount+ and HBO Max will be offered as a bundle at the beginning of 2027, followed by platform integration in Q4 2027.
Differentiated Revenue Forecasts, Downward Adjustment in Profit Forecasts
Citi raised the total cost of achieving synergies in the report and expects a longer realization timeline. As a result, the report lowers its 2028 adjusted EBITDA forecast from $17.709 billion to $16.175 billion, a decrease of 8.7%; the 2027 adjusted EBITDA forecast is lowered from $15.576 billion to $13.733 billion, down 11.8%. Revenue forecasts remain largely stable: revenue for 2027 is projected at $72.324 billion and for 2028 at $75.357 billion.
By segment, DTC revenue forecasts are revised up by 1.0% and 1.8% for 2027 and 2028, respectively; TV Media revenue forecasts are revised down by 0.5% each year; Studio revenue is slightly lowered by 0.1% due to weakness in Warner Bros. business. On the profit side, the adjusted EBITDA forecasts for TV Media, DTC, and Studio are all downgraded, while cost estimates at the company level rise significantly. According to the report, the adjusted EBITDA margin for 2027 is expected to be 19%, down from the previously predicted 22%; for 2028, 21%, down from the prior estimate of 24%.
In terms of earnings per share forecasts, Citi narrowed its expected 2026 per-share loss from $0.16 to $0.05, but sharply reduced the 2027 expected earnings per share from $0.18 to $0.04, and slightly adjusted the 2028 expected earnings per share from $0.65 to $0.63.
Focus on Free Cash Flow Bridge and Leverage Levels
Concerning management’s earlier statement that “including synergy realization costs, breakeven or better is expected in 2027,” the report suggests this comment may put some pressure on equity value, and some clients have asked Citi to provide a free cash flow bridge.
Starting from EBITDA excluding synergies and realization costs, and deducting net interest, taxes, cash transformation costs included in adjusted EBITDA add-backs, the difference between content cash payments and content amortization, and capital expenditure, Citi expects the company’s free cash flow to be $1.5 billion in 2027, rising to $7 billion by 2030, about $3 billion short of management’s $10 billion target.
The report also notes that its estimate of recurring synergies is $8 billion, higher than management’s $6 billion target; this judgement is based on the scale of cost reductions realized after the Skydance acquisition of Paramount. The report expects the company’s net debt/EBITDA to be approximately 6.2 times at the end of 2026, falling to 5.6 times in 2027, 4.6 times in 2028, and 3.8 times in 2029.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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