Viacom Left Behind In Fundamental Media Shift, Macquarie Says

Macquarie Research analysts never recommended owning Viacom, Inc. VIAB's stock, but the firm is taking a "tougher stance" against the company in 2018 — and the entire ad-supported media sector.

The Analyst

Macquarie Research's Tim Nollen downgraded Viacom from Neutral to Underperform with a $26 price target.

The Thesis

Viacom deserves credit for "valiant efforts" to reinvest and simplify its business but to little effect, Nollen said in the downgrade note. (See the analyst's track record here.) 

Aad growth remains in negative territory after years of investments in ad tech, and reduced ad loads have contributed further to lower ad revenues, despite ratings improvements, Nollen said. Viacom's OpenAP partnership to better reach audiences has a "long way to go," and the recently negotiated affiliate deal with Charter will see its re-tiered subs phased back in over the next quarter but at a potentially unknown cost, the analyst said. 

Viacom's movie pipeline sounds strong, including a "Top Gun" sequel, a new "Terminator" trilogy with James Cameron and a cofinancing deal with Hasbro, the analyst said. But any impact of a turnaround at the Paramount studio won't be seen until 2019.

Finally, a potential re-merger with CBS Corporation CBS remains a theoretical possibility, but it is not clear why CBS would want to assume control of Viacom's cable assets, Nollen said. A merger is unlikely to occur at a premium to Viacom's stock price, as any upside to CBS' platform from Viacom's content will merely be "modest," the Macquarie analyst said. 

"The right price for CBS therefore might be limited to the value of Paramount," Nollen said. "We could be wrong about this if the Redstones in fact seek a break-up, selling Paramount for a tidy sum and hiving off the cable networks."

Price Action

Viacom closed Tuesday up 1.23 percent at $31.19. 

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