Don't Expect Viacom Shares To Outperform While Charter Negotiations Ongoing

Shares of Viacom, Inc. VIAB were trading lower by about 5 percent Thursday after the company confirmed that Charter Communications, Inc. CHTR's customers could lose access to some of its TV properties, including MTV and Comedy Central.

Viacom confirmed it's attempting to reach a new agreement with Charter, but until such a deal is confirmed, its stock will remain under pressure, Rosenblatt Securities' Alan Gould said in a Thursday note. This belief stems from the fact that even Walt Disney Co DIS's stock has come under pressure while negotiating with Altice, and Disney held "most of the negotiating leverage," Gould said. 

It's difficult to see a scenario in which Viacom's stock will "perform well" at a time when negotiations are ongoing, despite the fact that the stock is "inexpensive" on a valuation basis, Gould said. Shares are trading at less than 7x earnings, with an 11 percent free cash flow yield. In the meantime, potential upcoming catalysts, such as the launch of a new low-cost entertainment bundle and renewed talks to combine with CBS, take a backseat.

"The Charter impasse adds uncertainty and as a controlled company, it is difficult to see the catalyst for shareholders to recognize the value," Gould said.

Given the near-term uncertainty, Gould maintained a Neutral on Viacom's stock and lowered Rosenblatt's price target on Viacom from $40 to $29.

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