BofA Downgrades ViacomCBS After Streaming Investments: What Investors Need To Know

Although ViacomCBS Inc VIAC remains an attractive target amid industry consolidation, a sale of the company is unlikely in the near term given its streaming aspirations, according to BofA Securities.

The ViacomCBS Analyst: Jessica Reif Ehrlich downgraded ViacomCBS from Buy to Neutral and lowered the price target from $53 to $39.

The ViacomCBS Thesis: The company is facing near- and intermediate-term headwinds from streaming content investments, Reif Ehrlich said in the downgrade note.

“We commend management for taking a bold approach, but near term headwinds will drive Y/Y declines in CY22 and CY23 OIBDA and pressure already depressed FCF levels,” the analyst wrote.

“While subscribers have outperformed expectations, and should be robust in 2022, the long term margin guidance (low/mid 20%) for direct-to-consumer (DTC) business will not be achieved until the back half of this decade while the legacy business is under continuing pressure,” she added.

Although the new price target represents a discount to peers, the analyst said this is warranted “given the prolonged earnings and free cash flow impairment required to fund near term streaming investments.”

VIAC Price Action: Class B ViacomCBS shares were down 21.77% at $28.16 Wednesday morning.