Wells Fargo’s tactical pair trade: Buy Spotify, sell Paramount

Wells Fargo's tactical pair trade: Buy Spotify, sell Paramount
© Reuters. Wells Fargo’s tactical pair trade: Buy Spotify (SPOT), sell Paramount (PARA)

By Senad Karaahmetovic

Wells Fargo analysts added Spotify (NYSE:) and Paramount (NASDAQ:) to its 2Q2023 Tactical Ideas List.

Such actions typically resemble analysts’ conviction that shares of a company will outperform the market in the near term.

They reiterated an Overweight rating and a $180 per share price target on SPOT stock, which implies an upside potential of ~35%.

“We expect SPOT to outperform expectations on margin expansion over the next ~18 months. Investors expect a price increase, but we think the follow-through will be better structural margins (we’d be buyers if folks ‘sell the news’),” the analysts wrote in a client note.

On the other hand, they reaffirmed an Underweight rating on PARA stock as the price target of $11 per share implies a ~50% downside risk.

“PARA is in the cross-hairs of Media sector challenges. We see revision risk, while next year’s positive FCF guidance seems challenging. Leverage is >5x. Equity compression risk remains the highest in Media, and PARA trades at a premium to WBD,” analysts added.

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