On Aug 23, we maintained our Neutral recommendation on
), as the company's bottom line lags the Zacks Consensus
Estimates but the top line surpassed the same in the recently
Why Remains Neutral?
Viacom benefits from a well-balanced asset mix with entertainment
content at its core. The company enhanced its brands worldwide
through the creation and acquisition of hit programming, new
channels, successful motion pictures and other forms of
entertainment, including video game offerings.
Viacom benefits immensely from its agreement to disribute digital
content to online video streaming companies, such as Netflix and
Hulu. These businesses generate very high margins, around 75%,
while facilitating the company to significantly improve its
bottom line. Management is hopeful that it will be able to expand
its digital content distribution deals, both in the U.S. and in
the international markets going forward. Moreover, Viacom is
generating strong free cash flow, enabling the company to
maximize its shareholders' wealth through dividend payments and
solid share repurchases.
On the flipside, the cable TV industry in the U.S. is highly
matured and saturated. Viacom's flagship cable channels are
already distributed and there is limited scope for driving
revenues by enlarging distribution channels. Viacom has done
extremely well in its digital content distribution business.
However, in the long run, these lucrative deals with online video
streaming companies may act as a boomerang for the company.
Moreover, online video streaming companies have posed a major
threat for the cable TV operators, who may not be able to pay
higher affiliate fees to Viacom since its contents can be viewed
Moreover, strong share repurchase plan undertaken by Viacom will
not only pressurize the company's current cash position, but may
also expand the company's financial leverage. Meanwhile, the
stock price has soared nearly 64% in the current year and is
currently hovering around high-end of its 52-week price range.
Currently, Viacom has a Zacks Rank #3 (Hold).
Other Stocks Outlook in Related Industries
Other companies belonging to the same media sector are
Time Warner Inc.
The Walt Disney Company
). All three have a Zacks Rank #3 (Hold).
CBS CORP (CBS): Free Stock Analysis Report
DISNEY WALT (DIS): Free Stock Analysis Report
TIME WARNER INC (TWX): Free Stock Analysis
VIACOM INC-B (VIAB): Free Stock Analysis
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