Paramount (NASDAQ:PARA) (PARAA) is expected to face ongoing advertising headwinds, prompting Bank of America to maintain an Underperform rating on the stock.

Choppy Ad Trends and Revenue Projections

The potential continuation of choppy trends in the advertising market could be reflected in Paramount’s upcoming fourth-quarter results. Analysts, led by Jessica Reif Ehrlich, project a 7% year-over-year decline in fourth-quarter revenue to $7.6 billion, attributed to a weaker box office slate and the residual effects of the writer’s and actor’s strikes, which were settled in September and November, respectively.

“Despite initial hopes earlier in 2023 of a second-half recovery in advertising, it does not appear to be materializing, and visibility remains limited as to whether it will recover in 2024,” the bank stated.

The entertainment company is scheduled to report earnings on February 15. Analysts anticipate the company to break even on an earnings-per-share basis for the quarter ended December 31, with sales forecast to come in at $7.9 billion. Though, the upcoming Super Bowl and political advertising in an election year are expected to bolster ad revenue.

Paramount previously reported revenue of $7.13 billion and earnings of $0.30 per share for the quarter ended September 30, both of which surpassed estimates.

Potential Sale and Merger Speculation

Bank of America highlighted the attractive collection of assets held by the entertainment giant, which could generate significant value in a potential sale. However, the analysts emphasized the lack of clarity as to how a sale might unfold and how it could impact investors.

Reports indicated that Paramount’s controlling shareholder, Shari Redstone, has been in discussions about selling the company’s movie studio and other assets to Skydance, whose stakeholders include RedBird Capital and David Ellison, the son of billionaire Larry Ellison. Skydance, known for producing the Paramount release Top Gun: Maverick, has emerged as a leading candidate to take over Redstone’s National Amusements, which holds a controlling stake in Paramount.

Furthermore, there have been reports of Paramount being in talks to sell Black Entertainment Television to a management-led investor group for approximately $2 billion. Additionally, Warner Bros. Discovery (WBD) has been suggested as one of the potential buyers of Paramount or its assets.

Amid merger speculation, the company was recently upgraded by investment firm Moffett Nathanson.