Viacom Shares May Have Bottomed, Says Deutsche Bank

Viacom, Inc. VIAB's multiple may not compress any further according to Deutsche Bank. This prompted the firm to revisit its rating on the company's shares Monday.

The Analyst

Deutsche Bank analyst Bryan Kraft upgraded shares of Viacom from Sell to Hold, with a $25 price target.

The Thesis

Viacom shares now trade at a 10.5 percent 2018 unlevered free cash flow yield estimate. Kraft noted that a stock in the media sector hasn't had a multiple this low since the financial crisis.

With this already implying a declining business, Kraft thinks the probability of further multiple compression is low.

Following the release of its fiscal year fourth quarter results, the management projected to a mid-single digit domestic affiliate revenue decline in 2018, Kraft noted. The analyst said the company is unlikely to miss its 2018 affiliate guidance meaningfully, and that if the improvement in ratings performance seen over the past year continues, it should lead to an improvement in ad revenue trends.

Deutsche Bank also said that potential M&A could provide some outside confirmation for the company's valuation, but that said, the firm doesn't think Viacom is one of the top M&A targets in the sector.

Also, cost-cutting plans should support operating income growth in 2019, the firm noted.

The Price Action

Viacom shares are down lost over 15 percent in 2017.

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