Citi Contrarian Buy Call on Skydance (SKYD.US): Target Price $10, Betting on $8 Billion Synergy

According to Zhichong Finance APP, amid prevailing cautious sentiment on Wall Street towards media giant Skydance Corp (SKYD.US), Citi Research recently published a sharply divergent view in a research report. After a period during which coverage was suspended, the team of analysts led by Jason Bazinet resumed coverage of Skydance and immediately issued a “Buy” rating, setting a target price of $10.

Citi believes the market is currently overly pessimistic about Skydance’s earnings prospects, and that the synergy released through its acquisition of Warner Bros will far exceed management’s guidance, thereby driving EBITDA to significantly surpass market consensus.

Citi’s report states that although its EBITDA forecasts for 2027 to 2029 are lower than Skydance management’s internal goals, these projections are about 12% higher than Wall Street’s average expectations. In Citi’s view, this gap indicates investors remain doubtful.

Citi’s optimism is based primarily on the cost synergies from the acquisition deal. The report notes that when Skydance acquired Paramount, management initially promised $2 billion in net synergies but ultimately delivered $3 billion. Given this history of “over-delivery,” when management set a $6 billion synergy target for the Warner Bros deal, Citi believes $8 billion is a more realistic figure—about $2 billion higher than management’s target.

The Birth of Skydance

Citi’s report provides a detailed review of Skydance’s origins. In Q4 2026, Paramount acquired Warner Bros at $31 per share for a total of $81 billion. Including around $15 billion of term loan repayments, a $3 billion breakup fee for Netflix (NFLX.US), and other deal-related costs, Skydance required approximately $104 billion in funds. This capital was structured as $57 billion in new debt and $47 billion in equity financing, with equity issued at $12 per share and a pro forma share count of 5.03 billion.

This merger created a new entity large enough to rival established industry giants. Citi benchmarked Skydance across several axes: its annual content spend reaches about $30 billion, roughly 50% higher than Netflix and 20% higher than Disney (DIS.US); its television and film studio business generates revenue twice that of Sony (SONY.US), NBC Universal, or Disney; and its Direct-to-Consumer (DTC) business, while half the scale of Netflix, is on par with Disney.

Synergies: The Entire Engine of EBITDA Growth

Citi’s constructed EBITDA bridge provides a clear roadmap for the company’s future growth. On a pro-forma combined basis, Skydance’s EBITDA is projected at $12.5 billion in 2026. Citi expects the company to realize $8 billion in net synergies by 2029. However, Citi forecasts EBITDA of $19.4 billion in 2029. This means that nearly 100% of Skydance’s EBITDA growth over the next few years will hinge upon the fulfillment of these synergies.

To quantify these synergies, Citi breaks them down: the Warner Bros deal is expected to deliver net synergies of $8 billion after deducting roughly $3.2 billion in implementation costs. Regarding realization timing, Citi assumes 30% will be achieved by 2028, 70% by 2029, and 100% by 2030.

Beyond synergies, the EBITDA bridge also factors in other key variables: including roughly $1.1 billion in annual negative impact from cord-cutting, a $300 million annual benefit from cable carriage fee hikes, a $500 million sports rights cost increase in 2028 due to the renewal of MLB, NHL, and other rights, and modest growth in DTC and studio businesses.

Risks and Catalysts

Despite an optimistic outlook, Citi also clearly identified risks. Skydance is highly leveraged, with projected year-end 2026 net debt/EBITDA reaching 6.3x. If the company fails to deliver cost synergies on schedule, it may face challenges refinancing its debt. Additionally, roughly 20% of revenue comes from advertising; an economic recession would significantly impact both EBITDA and equity value. The company’s performance is also heavily reliant on the commercial success of iconic IPs such as Top Gun, Mission Impossible, and Star Trek.

In terms of potential catalysts, the report mentions a market rumor from October 22, which suggested that Elon Musk invested approximately $1 billion in Skydance. Citi speculates that Musk may not have subscribed for new shares, but instead acquired equity from David Ellison. Such a move may grant SpaceX priority access to Skydance’s TV spectrum following ATSC 3.0 deployment. However, Citi estimates the value of this spectrum transaction at only about $800 million (or $0.16 per share), which would have a minimal effect on the company’s overall equity value.