Citi goes against the grain to call a buy on Skydance (SKYD.US): price target US$10, betting on US$8 billion in synergies.

Against the backdrop of Wall Street's broadly cautious stance on media giant Skydance Corp (SKYD.US), Citi Research recently published a sharply different view in a research report. After a period of rating suspension, the bank's analyst team led by Jason Bazinet resumed coverage of Skydance and directly assigned a "Buy" rating with a price target of US$10. Citi believes the market is currently overly pessimistic about Skydance's earnings prospects, and that the synergies unlocked by the company's acquisition of Warner Bros will far exceed management guidance, driving EBITDA to significantly outperform market consensus. Citi said in the report that although its 2027-2029 EBITDA forecasts are below the internal targets set by Skydance management, its forecasts are about 12% above Wall Street consensus. In Citi's view, this gap shows investors remain skeptical. Citi's optimism is mainly built on the cost synergies of the acquisition. The report noted that when Skydance acquired Paramount, management initially promised US$2 billion in net synergies but ultimately delivered US$3 billion. Based on this track record of "over-delivery," when management set a US$6 billion synergy target for the Warner Bros deal, Citi believes US$8 billion is a more realistic figure, which would be about US$2 billion above management's target. The birth of Skydance Citi's report detailed the history of Skydance's creation. In the fourth quarter of 2026, Paramount acquired Warner Bros for US$31 per share, totaling US$81 billion. Including about US$15 billion in term loan repayment, US$3 billion in Netflix (NFLX.US) breakup fees and transaction-related costs, Skydance needs about US$104 billion in funding. This funding consists of US$57 billion in new debt and US$47 billion in equity financing, with equity issued at US$12 per share, bringing pro forma share capital to 5.03 billion shares. This merger has shaped a new entity whose scale is enough to make existing giants take notice. Citi compared it with industry benchmarks across multiple dimensions: Skydance's annual content spending is as high as about US$30 billion, roughly 50% higher than Netflix and about 20% higher than Walt Disney Company (DIS.US); its television and film studio business is massive, with revenue about twice that of Sony (SONY.US), NBCUniversal or Walt Disney Company; in direct-to-consumer (DTC) business, although its scale is half that of Netflix, it is on par with Walt Disney Company. Synergies are the entire engine of EBITDA growth The EBITDA bridge constructed by Citi clearly reveals the company's future growth path. On a pro forma combined basis, Skydance's 2026 EBITDA is US$12.5 billion. Citi expects the company to achieve US$8 billion in net synergies by 2029. However, its 2029 EBITDA forecast is US$19.4 billion. This means that in the coming years, nearly 100% of Skydance's EBITDA growth will depend on the realization of synergies. To quantify this synergy, Citi broke down its composition in detail: it expects the Warner Bros deal to achieve US$8 billion in net synergies after deducting about US$3.2 billion in implementation costs. On the realization schedule, Citi assumes 30% realized in 2028, 70% in 2029 and 100% in 2030. In addition to synergies, Citi's EBITDA bridge also incorporates other key variables: including an annual negative impact of about US$1.1 billion from cord-cutting, an annual gain of US$300 million from cable carriage fee increases, a US$500 million sports rights cost pressure in 2028 from renewals of rights such as MLB and NHL, and moderate growth in the DTC business and studio business. Risks and catalysts Despite the optimistic outlook, Citi also clearly pointed out the risks. Skydance has high leverage, with net debt/EBITDA expected to reach 6.3x by the end of 2026. If the company cannot deliver cost synergies on schedule, it may face challenges in debt refinancing. In addition, about 20% of the company's revenue comes from advertising; if the economy falls into recession, its EBITDA and equity value would be significantly hit. At the same time, the company's performance is highly dependent on the commercial success of iconic IP such as Top Gun, Mission: Impossible and Star Trek. On potential catalysts, the report mentioned market rumors on October 22 that Elon Musk invested about US$1 billion in Skydance. Citi speculated that Musk may not have subscribed for new shares but instead bought shares from David Ellison. This move could give SpaceX priority rights to acquire Skydance's television spectrum after ATSC 3.0 deployment. However, Citi estimates the spectrum deal is worth only about US$800 million (US$0.16 per share), with minimal impact on the company's overall equity value.