Pivotal Updates Media Outlook, Upgrades Viacom

Viacom Inc VIAB VIA got an upgrade Tuesday from one analyst after updates to his 2019 earnings estimates for media stocks implied plenty of potential upside for Viacom investors.

The Analyst

Pivotal Research analyst Brian Wieser made the following changes to his media stock ratings and targets:

• Viacom upgraded from Hold to Buy, price target raised from $33 to $36.
• CBS Corporation CBS reiterated at Hold, price target reiterated at $52.
• Discovery Communications Inc. DISCA reiterated at Hold, price target raised from $27 to $30.
• Walt Disney Co DIS reiterated at Sell, price target raised from $95 to $97.

The Thesis

Cable network revenues are generally growing at a mid-single-digit rate, Wieser said, with price hikes more than offsetting single-digit percentage declines in subscribers. Flat TV advertising trends nationwide coupled with rising costs have eaten into profits, but Wieser said the stocks valuations are reasonable.

Viacom in particular has roughly 15-percent upside based on the new Pivotal target.

“A downside remains in the company’s sub-optimal ownership structure, but upside probably exists for Viacom if that same ownership structure ultimately leads it to a merger with CBS and the elimination of many duplicated expenses at some point in the future,” Wieser wrote in the note.

He said Disney is still too risky for investors to touch due to a number of critical uncertainties, including ESPN+ penetration, the launch of the Disney+ streaming service and the consolidation of Hulu following the Fox acquisition. Roy said Disney will likely sacrifice near-term profits in 2019 in favor of investments that will boost long-term growth, putting near-term earnings estimates at risk.

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