#Shares of Discovery, ViacomCBS fall on Wells Fargo downgrade

Shares of Discovery and ViacomCBS tumbled on separate downgrades from Wells Fargo on Friday, as analysts expressed concerned that the media companies’ recent gains may be overblown.

In early-day trading, ViacomCBS saw its stock sink more than 12 percent, to $57.76, as shares of Discovery plunged more than 21 percent, to $45.50.

ViacomCBS, which operates Paramount Pictures, Nickelodeon, CBS and Comedy Central, peaked at a 160 percent increase year-to-date, which Wells Fargo said marks the end of a volatile period. The firm said it believes that valuations are resetting to more “normalized levels.”

“We don’t think these media stocks will go back to their historical low levels,” analyst Steven Cahall wrote, citing more optimism about the companies’ streaming businesses and “the potential for an enduring nonfundamental premium.” Still, Cahall added that “we do see gravity pulling the multiples closer to prior norms.”

He cut his rating on ViacomCBS to underweight from equal weight with a $59 price target, down from its previous $82 a share target.

He also cut Discovery, whose channels include Food Network, TLC, HGTV and Animal Planet, to equal weight from overweight and slashed its price target to $59 a share from $65 a share.

Still, Cahill said he remains bullish on the company’s streaming strategy, under newly launched service, Discovery+. He cited “the prospects for Discovery+ after a strong start to the year (and) pending international expansion with the Olympics.” 

Still, this is the second Discovery downgrade this week. Earlier, UBS demoted the stock to “sell,” noting that the stock has risen about 150 percent this year and may have gotten ahead of itself.