Barclays Capital analyst Anthony DiClemente says ratings are looking better for Viacom’s cable networks and the stock is trading at a discount to its media peers. So, he’s raised his price target and renewed his “overweight” (buy) rating.
“We continue to recommend Viacom Inc., which trades at the most attractive P/E [price to earnings ratio] and P/FCF [price to free cash flow ratio] in all of media. Macro ad trends continue to improve. We raise our PT [price target] to $32 from $27,” DiClemente said in a research note. The stock had last closed at $26.60 before his report and rose 4.4% in Monday’s trading to $27.77.
The analyst noted that rating declines for MTV have moderated. The ratings are still down from a year ago, but are now down only high single digits instead of mid-teens. For all of Viacom’s cable networks, summer ratings were up 1%, he wrote. Also, DiClemente sees direct response ads, which are much cheaper than cash spots, returning to normal levels across the industry. He puts direct response recently at 10-12% of ad inventory, up significantly from the normal 3-5%.
Apart from the advertising-based business, Viacom reported strong sales of The Beatles Rock Band game.
DiClemente is also looking at the possibility of share buybacks by Viacom in the second half of 2009 due to the company’s increasing free cash flow.