On Nov 22, we maintained our Neutral recommendation on
), as the company's top and bottom line surpassed the Zacks
Consensus Estimate in the recently concluded quarter.
Why the Reiteration?
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 high margins of around 75%, while
facilitating the company to significantly improve its bottom
Management is hopeful that it will be able to expand its
digital content distribution deals, both in the U.S. and
internationally going forward. Moreover, Viacom is generating
strong free cash flow, enabling the company to maximize its
shareholders' wealth through dividend payments and solid share
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 performed
impressively 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
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Moreover, strong share repurchase plans 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 61% in the current year and is
currently hovering around the high end of its 52-week price
Currently, Viacom has a Zacks Rank #3 (Hold).
Other Stocks Outlook in Related Industries
Other companies belonging to the same media sector are
). Netflix has Zacks Rank #1 (Strong Buy) while both Pearson and
Comcast have Zacks Rank #2 (Buy).