Global media companies Warner Bros. Discovery (WBD) and Paramount Global (PARA) are scheduled to report their quarterly results on November 7 and 8, respectively. Using the TipRanks Stock Comparison Tool, a closer look suggests both stocks have a neutral outlook. However, if I had to choose one as the better buy ahead of earnings, I'd lean toward Paramount Global, given its better fundamentals and relatively stronger track record in meeting earnings expectations.

Let's dive deep.

I have a neutral outlook on Warner Bros. Discovery as an investment, primarily because the company remains weighed down by substantial debt from its merger with Discovery and faces ongoing challenges in reducing this debt.

Currently, WBD has $41.4 billion in gross debt, translating to a net debt-to-earnings leverage ratio of 4x. Despite generating a solid $7.47 billion in cash flow last year, there is skepticism about the company's ability to meet its leverage target of 2.5x to 3x by the end of 2024. The major concern is that Warner Bros. Discovery is not yet profitable, with analysts forecasting profitability sometime in 2025.

In the streaming market, WBD competes with HBO Max and Discovery+, providing a blend of premium and reality television content. The company's path to profitability is closely tied to its direct-to-consumer (DTC) strategy, which includes the Max platform. While the segment is still posting a slight loss this year, it has seen global growth with 103.3 million subscribers.

While DTC subscriber numbers in the U.S. and Canada are falling, recent price hikes for Max are expected to offset the lower average revenue per user (ARPU), which is approximately $8 -- approximately half of Netflix's (NFLX). Achieving profitability may take some time, but Warner Bros. Discovery's valuation appears appealing, with an EV/EBITDA of 7.9x, nearly 27% lower than the industry average.

I prefer to remain cautious about Warner Bros. Discovery given its conservative Q3 2024 earnings outlook, with revenue projected at $9.79 billion. This moderation likely stems from significant debt obligations, potentially limiting cash flow and challenging profitability. In the past three months, nine out of ten analysts have revised earnings down, and seventeen out of nineteen have lowered revenue projections, underscoring increasing skepticism around WBD's performance.

It's important to note that WBD has beaten EPS and revenue estimates in only two of the last ten quarters. If it fails to meet conservative Q3 expectations, this could signal worsening liquidity issues and harm the company's financial stability. Conversely, exceeding these expectations might offer short-term support for the stock despite the overall bearish sentiment. However, I believe taking that risk isn't worthwhile.