Viacom Gets Ratings Boost On CBS Merger Prospects

Viacom, Inc. VIAB celebrated a strong first quarter, which saw improvements in domestic advertising, subscriptions declines and revenue guidance.

Shares popped 11.3 percent on Thursday’s report, and one analyst sees continued upside.

The Rating

RBC Capital Markets analyst Steven Cahall upgraded Viacom to Sector Perform and increased his price target from $23 to $35.

The Thesis

The price target popped 52 percent primarily on merger prospects with CBS Corporation CBS.

“We believe CBS and Viacom leadership will hash this out and probably merge at or near market prices since the market is a reasonably honest broker of valuations,” Cahall wrote in a note.

The $35 share price is based on improving perception of Viacom’s assets relative to peers.

The analyst views the firm’s Viacom18 stake worth about $2 billion and the Paramount unit, when compared with the recently acquired 20th Century Fox on a 15-percent enterprise value-to-sales discount, about $4 billion. Additionally, he increased his 12-month media net earnings before interest, taxes, depreciation and amortization estimates from a 5.5 to 6.5 multiple considering Discovery Communications Inc. DISCA’s purchase price of Scripps Networks Interactive, Inc. SNI.

Price Action

Shares closed up about 0.5 percent at $32.87.

Related Links:

Explaining The Price Discrepancy Between Viacom's Share Classes

Viacom Downgrade Sends Stock To 7-Year Low

Photo by Coolcaesar/Wikimedia.